Chinese investors have had to maintain a go-slow on investments in the U.S, amid vicious rhetoric by President Donald Trump against China. Likewise, Chinese investments in the U.S fell to the lowest level since 2006, the past year, as the Trump administration embarked on a crackdown against such investments in sensitive sectors. However, that looks to change on President-elect Joe Biden assuming office in a few days.
Chinese-U.S Investments Drop
Merger and acquisitions involving Chinese companies in less politically sensitive sectors could inch higher in the coming months upon Biden taking the reins of power. Biden is expected to adopt a more conciliatory tone than his predecessors, crucial to fuelling Chinese investments in the U.S.
U.S-China tensions have hit their highest levels in recent months, with Washington blocking a number of Chinese investments in the U.S and blacklisting a number of Chinese companies. Likewise, M&A activities by Chinese companies and investors have shrunk to their lowest level since 2006. Deals into and out of China were down by 5.5% in 2020 following a 40% plunge in 2019.
In recent years, Chinese asset buyers have been on a go-slow after ranging up the biggest shopping bill in 2016. In 2016, the asset buyers completed over 924 transactions valued at $203.9 billion. In contrast, the outbound purchases dropped 15% in 2020 from 2019 to just 443 deals valued at $37.1 billion. Inbound deals, on the other hand, were down 4% to 580 purchases valued at about $44 billion.
In addition to President Donald Trump’s pressure, the reversal came amid Chinese regulators unleashing a crackdown on asset buyers led by a bang Insurance Group and Dalian Wanda Group. The regulators have, in the recent past, cracked the whip on a debt-fuelled shopping spree.
Likewise, most of the merger and acquisition activity in 2020 was mostly driven by domestic consolidation rather than cross-border transactions. Similarly, domestic deals rose 38.8% in China to $478.5 billion.
China is not the only country to register a decline in outbound deals. Cross border deals were down by 13% worldwide in 2020 in the wake of the Covid-19 pandemic taking a toll on the global economy. The pandemic made it impossible for bankers and clients to have face to face meetings while also forcing acquires to be more cautious.
Regime Change Impact
Relative normalcy should kick in with the Biden administration as the new president is expected to maintain a more globalist and less confrontational approach. Likewise, there should be a spike in cross-border deal-making with valuation levels in some sectors at all-time lows in the aftermath of the pandemic.
Amid the regime change, it awaits to be seen what Biden will push for amid the TikTok standoff. The Trump administration has insisted that the viral video app poses a significant danger to U.S users and must be bought by a U.S company. A number of U.S companies led by Oracle, Walmart, Sequoia Capital, and General Atlantic have already shown interest in acquiring the app.
The takeover was poised to be completed last month, that nothing happened, leaving the deal in Limbo. TikTok has opposed the sale in addition to challenging the ban of its services in the U.S.