China’s Mergers and Acquisitions Market: Latest Trends

Posted by Written by Giulia Interesse Reading Time: 7 minutes

China mergers and acquisitions (M&A) transactions continued to surge in terms of both volume and value throughout 2021 and in the first quarter of 2022. Several government policies and industrial upgrade programs have facilitated this growth, allowing foreign investors to participate in the market. In this article, we highlight the latest developments in the Chinese M&A market. We also analyze the impact of economic disruptions associated with COVID-19 and geopolitical events on the domestic M&A transaction activity, concluding that necessary corporate reorganizations and changes in business strategy for purpose of capacity enhancement and sector diversification, ESG goals, and other industry trends – will necessitate more deals in the future. In short, China will remain a hot M&A market in 2022.

Mergers and acquisitions in China: A look at the numbers

In recent years, the mergers and acquisitions (M&A) market in China has dominated the news, both in terms of government focus and media coverage.

In 2021, China M&A activity reached a new high with 12,790 deals closed, up 21 percent from the previous year, though deal prices declined 19 percent to US$637 billion. Private equity (PE) funding for M&A deals was the largest by value for the first time. 97 PE-backed mega-deals were closed, worth more than US$1 billion, many of which corresponded to significant domestic economic objectives, such industrial upgrade (23 transactions worth US$56 billion), dual circulation (17 deals worth US$31 billion), and environment, sustainability, and governance (ESG) (9 deals worth US$26 billion).

Nonetheless, rapid changes have taken place in the China M&A market, presenting it with both challenges and opportunities.

On the one hand, geopolitical crises worldwide, as well as turbulent market circumstances, continue to put downward pressure on China’s M&A transaction activity. According to recent estimates, despite witnessing 10 megadeals (deal value US$1 billion) in the first quarter of 2022, the country suffered a 12 percent and 9 percent reduction in transaction value in the sector, compared to the last and the first quarters of 2021, respectively.

Considering that the COVID-driven boost to deal-making has mostly disappeared, this decline compared to the previous year might be seen as a return to “pre-pandemic” levels. Moreover, rising geopolitical tensions in the aftermath of the Russia-Ukraine conflict, a worsening macroeconomic outlook, higher interest rates, and supply chain disruptions have all contributed to a slowdown in investment activity, particularly in Asia-Pacific M&A hubs, including China. In other words, the M&A market is entering a more muted phase as corporations become more cautious about transactions.

On the other hand, new opportunities are open for foreign investors willing to venture into China’s M&A market.

Notwithstanding the recent slowdown, China’s M&A potential is expected to remain high in 2022, owing to the Chinese economy’s rapid transition and record amounts of dry powder (marketable, “cash-like” securities that are highly liquid) for financial sponsors.

All in all, domestic M&A is expected to be largely equivalent or slightly lower in 2022 than in 2021, and it will unfold in the future according to the trends we highlight below.

Further, while overall deal-making has slowed in recent years, both outbound and domestic M&A transactions are still happening at a fast pace. Some worth mentioning include CIMC’s acquisition of A.P. Moller-box Maersk’s manufacturing unit (Maersk Container Industry) with a deal price of US$1 billion, which gave CIMC the title of the world’s largest container producer. Other transactions included BASF’s joint venture (JV) with Hunan Shanshan Energy Technology and Mengniu’s acquisition of Milkground, a popular cheese producer that has expanded at a pace of 112 percent annually since 2018.

Renewables becoming M&A hotspots

The objective of reaching carbon neutrality has hastened energy transitions, including in China, generating enormous business potential. The value chain for renewable energy will become the main center of a new cycle of market expansion. As the industry continues to innovate, it also opens new opportunities for long-term value investments to emerge.

As a direct consequence, China’s proposed domestic objectives of carbon peaking and carbon neutralization has had a significant influence on the ‘new energy’ sector (which includes technologies working with hydropower, biofuels, wind and solar-based sources of energy)– made by creating new M&A hotspots. The amount of PE funds propping the sector facilitating carbon reduction in China has already surpassed RMB 150 billion (US$22 billion), while the size of funds for green development and green bonds has surpassed RMB 88.5 billion (US$ 13 billion). This influx of significant capital has invigorated new energy investments besides boosting M&A activity. Consequently, China’s energy industry’s yearly M&A transaction value reached RMB 402.9 billion (US$59,6 billion) in 2021, and the number of M&A deals was over 803, up 50 percent for mergers and 80 percent for acquisitions – compared to the previous year, both establishing a new high in the reporting period.

The “conventional” renewable energy segments represented by wind and solar, as well as the “dual engine” powered battery and energy storage of new energy vehicles and energy storage applications, go hand in hand with a large rise in activity from the standpoint of segmented domains. Investors are also becoming interested in the “cutting-edge” technology provided by hydrogen energy. Indeed, China’s hydrogen demand is expected to reach 35 million tons by 2030, accounting for at least five percent of the country’s energy supply, before rising 10 percent to 60 million tons by 2050, and 20 percent to 100 million tons by 2060, according to the China Hydrogen Alliance. The industry’s output value is expected to reach RMB 1 trillion (US$157.44 billion) by 2025, according to the association. This will positively impact M&A traffic as it creates more incentives for investors to chip in.

Digital industry M&A setting new record

The global digital industry M&A record has reached new highs in 2021. The number of transactions worldwide climbed 131 percent from 85 in 2020 to 197 in 2021.

Amid the spike of M&A transactions in global data assets, deals in China’s digital industry have also become frequent.

Among others, GCD Wanguo Holdings Limited, the Chinese leading company of International Data Corporation (IDC), has successively acquired more than 10 data center projects in cities like Beijing and Tianjin – among others – as well as formed tight partnerships with investment firms like Hillhouse Capital and CITIC Industrial Fund.

Cade Group, a leading Asian real estate company, paid RMB 3.66 billion (US$53 million) for a super large-scale data center park in Shanghai, signaling a significant increase in data asset investment; similarly, PLoS acquired 50.1 percent of Shanghai Songjiang Internet Data Center, securing a spot in the Yangtze River’s leading artificial intelligence supercomputing hub.

All in all, China’s domestic M&A activity has been highly fueled by a strong demand for technology, and for digital and data-driven assets, spurred equally by market forces and government plans.

PE funds and venture capital becoming increasingly active

PE funds are becoming increasingly active in the China M&A market, playing an essential role in foreign acquisitions of Chinese businesses.

With plenty of dry powder and pressure to deploy capital, 2020 was a red-hot year for PE investment: volumes reached an all-time high and values were just off the 2020 peak, which was boosted by several very large state-backed interventions. For the first time ever, PE accounted for more than half of all China M&A transaction by value. In the technology, industrial, and consumer sectors, deal values remained very high throughout 2021, with increased PE participation in mega-deals related to investment themes like e-commerce, logistics, and China’s transition to ESG.

The number of M&A deals led by private funds and investment organizations have grown even more compared to 2020, representing over half of the total number of deals in China in the first three quarters of 2021, for a value of over US$500 million. The Shenzhen and Shanghai STAR markets were again the most popular listing destinations for PE-backed issuers. (The STAR market primarily represents promising private Chinese companies, such as startup unicorns.)

Restructuring tendencies

Enterprise reorganization and industrial integration have increased as a result of the COVID-19 pandemic, as M&A has become a popular option for investors to get through difficulties and adapt their businesses. Since the outbreak, companies that have been unable to sustain normal operations may have had to sell part of their assets in order to survive, giving a diverse set of M&A prospects to the market. GCL new energy, for example, sold a number of photovoltaic power station assets to foreign investors in order to reduce its interest debt ratio and financial cost pressure, for a total of 469MW photovoltaic power stations and an overall transaction volume of about US$ 322,5 million), becoming a model of “slimming” enterprises through M&A and remodeling the industrial chain in this sector.

State-owned capital, on the other hand, has been quite active in making large-scale acquisitions of struggling private firms. Restructuring and M&A of central state-owned enterprises (SOEs, that is, companies under the direct supervision of China’s central government) are also on the rise, giving the sector a boost. For example, Zhuhai State-owned Assets Supervision and Administration Commission (Zhuhai SASAC) has invested in nearly 20 listed companies, primarily in the electronics, communications, electrical equipment, and other industries, through the Zhuhai HUAFA group, Zhuhai Port holding, and other companies under its control. The restructuring of Sinochem Group Co., Ltd. and China National Chemical Corporation Ltd. (ChemChina) has resulted in the establishment of a new SOE, Sinochem Holdings Corporation Ltd.

Sinochem Holdings, with assets of more than US$ 209.9 million and holding 16 listed companies to date, has become one of the world’s largest chemical conglomerates.

New regulatory trends affecting M&A

In the past few years, regulatory developments have significantly impacted M&A transactions in China, with higher monitoring and approval standards for foreign enterprises to carry out China-inbound deals.

Among others, antitrust and national security reviews are becoming more common in both domestic and foreign M&As. For example, on July 10, 2021, the anti-monopoly bureau of the State Administration for Market Regulation (SAMR) released the decision on prohibiting the merger between HUYA Inc. and Douyu International Holdings Limited due to antitrust concerns. This is the third M&A case that was prohibited to proceed for an history of “restricting competition”, and the first M&A transaction prohibited in China’s internet industry with respect to domestic companies. The case demonstrates that deals involved in the internet industry, particularly China’s platform economy, will be subject to increasingly strict antitrust review, amid China’s campaign to guide the healthy development of this industry.

Meanwhile, data compliance and ESG reporting are growing more important under M&A due diligence; failing to account for these may cause unexpected corrective costs and administrative penalties, and seriously damage the commercial value of the deal.

Moreover, some other regulatory moves from the Chinese government, such as the crackdown on the for-profit tutoring industry, gaming services provided to minors, and the medical beauty advertising industry also have also impacted the nature of China’s M&A market.

Looking forward

Chinese M&A transactions are bound to remain strong in 2022 based on both economic plans and available liquidity for investments. The number of domestic M&A deals seen in China in 2022 is likely to be around the same as in 2021, or only slightly lower than in 2021. Enterprises will continue to have a high need for equity capital.

At the same time, the private equity fund business has ample capital available for investment. Despite economic headwinds, PE funds’ investment activities are likely to be similar to or only slightly lower in 2022 than they were in 2021.

On the other hand, some regulatory tightening will continue to restrict scope for certain types of M&A deals. Dealmakers should integrate regulatory developments in their M&A strategy planning and risk management. Antitrust, national security, and data security concerns will lead to extra reviews from the government or even the failure of the deal. Stakeholders involved may be required to disclose extra information or commit to specific rules to resolve the government’s concerns. China’s growing emphasis on ESG requirements is also set to affect what M&A transactions may be allowed.

Foreign investors who plan to access China’s emerging opportunities through M&As are advised to pay close attention to market and regulatory trends in this dynamic regime.

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China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at

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