Investment in China by foreign business has fallen off to an unprecedented degree due to a combination of COVID controls, rising interest rates elsewhere, and heightened geopolitical risks subduing international investment appetite for merger and acquisitions, according to a report from French investment bank Natixis.
Inbound merger and acquisitions deals into Asia fell in first half 2022, both by number of cases and total value, with the decline “particularly” present in China “given the rapidly deteriorating macroeconomic outlook and the persistence of zero-COVID policies, regulatory restrictions, and [China’s] real estate [market] demise,” according to the report. Inbound completed deals in China made up 13 percent of total inflows into Asia, China’s lowest share of that metric since 2006.
China’s strict COVID controls has dampened domestic retail spending, resulted in production delays and shipping logjams, and are a major reason why investors are shunning the country, Natixis said. Additionally, Chinese regulators’ growing scrutiny of the nation’s e-commerce sector has spooked foreign investors and contributed to a crash in the stock prices of online seafood vendors Dingdong and Missfresh.
In contrast, global investment into the Association of Southeast Asian Nations (ASEAN) bloc, as well as India, and Australia has been much more robust since 2020, Natixis found. A relaxation of pandemic controls in ASEAN and a loosening of restrictions on inbound investment by both ASEAN and India – in contrast to a tightening of regulations in both the E.U. and U.S. – helped spur investment, the report said.
America remained the largest M&A inbound investor in Asia, while China’s role declined. China’s outbound investment to Australia and Japan has dropped as a result of “weakened outbound appetite as well as increased scrutiny and rising geopolitical tensions,” Natixis found. Bids from the U.S. and E.U. for Chinese assets are down, but those of Japan and South Korea are up.
“Flows were reshuffled to reflect rising need for diversification of supply chains, demand, and securing energy sources,” according to the report, which was shared with SeafoodSource. ASEAN attracted 56 percent of the total dealflow into Asia in H1 2022, giving it the largest share in Asia. ASEAN member Indonesia secured twice as much as mainland China’s completed deal flow, according to Natixis’ calculations.
The trend has significant implications for China’s economy and for companies seeking foreign investment and know-how, and it increases the competition for Chinese investors seeking acquisitions in Southeast Asia and India.
“The reshuffling of investment destination reflects short-term shocks and longer-term trends that necessitate diversification of supply chains, exposure to growth markets, and secure energy,” the Natixis report said.
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