Chinese investment overseas hit a 13-year low in 2020 as major deals were put on ice due to economic uncertainty and pandemic-related travel restrictions curtailed new ones. In Europe, Chinese foreign direct investment (FDI) hit a 10-year low in 2020—the fourth consecutive year-on-year dip and a sign that Brussels’ fears of a wave of asset-buying on the cheap were unfounded.
Chinese investors completed just €25 billion ($30.3 billion) of mergers and acquisitions last year, a 45% decrease from 2019, according to a new report by the US-based research consultancy Rhodium Group and the Germany-based think tank Mercator Institute for China Studies (MERICS). That assessment is based on transaction-level data and differs from official Chinese government statistics, which show that outbound investment was stable in 2020.
Meanwhile in the UK and the 27 countries of the European Union, completed Chinese FDI fell 44% compared to 2019. In fact, the value of completed Chinese FDI in Europe has fallen every year since it peaked at €44.2 billion ($53.5 billion) in 2016.
According to the report, that downward trend is “due to domestic constraints on outbound capital flows and tighter scrutiny of Chinese investments abroad,” and the pandemic “accentuated the fall in China’s outbound activity by hindering normal business activity.”
Are Chinese investments in Europe picking back up?
Overseas investment fell everywhere last year because of the pandemic. But these data show a sustained trend of decreased interest on the part of Chinese investors in Europe, in spite of fears that European companies would be snapped up left and right at undervalued prices because of the generalized economic uncertainty tied to Covid-19. In fact, both the EU and the UK passed laws to limit foreign takeovers of companies in sensitive sectors. While the laws didn’t explicitly target China, officials were clear that it was their major source of concern (paywall).
This may have pushed Chinese investors away, according to Peter Lu, a partner at the law firm Baker & Mackenzie who specializes in M&A and leads the firm’s China Practice in the UK. “We got a few deals which should [have been] very interesting for Chinese investors” in 2020, he says. “But now they discussed and said ‘it’s not the right time for us.’ This shows that they factor in the political considerations.”
Still, says Lu, business is picking up, and he is seeing more interest from Chinese investors in acquiring UK companies in the financial and technology sectors especially—although most of the activity consists of forming new companies or joint ventures to complete pre-existing deals. “Last year, the attitude was wait and see. Now, I think there are plenty of things [Chinese investors] want to push forward.”
China attracted the most foreign investment in 2020
Chinese outward investment may have slowed but China itself was the largest recipient of foreign investment in the world in 2020, according to the OECD. It was also the only major country that ended 2020 with a larger economy than it started. And while Chinese investors are shying away from Europe, European companies are doubling down on the Chinese market and expanding their operations in China.