21st Century Business Herald
Morrison & Foerster partners Paul D. McKenzie and Craig I. Celniker discussed the declining trend of Chinese cross-border M&A in the first half of 2018, U.S. national security reviews of foreign investments, and the U.S.-China trade war in the 21st Century Business Herald article “In the first half of the year, Chinese cross-border M&As reached US$76.5 billion, Chinese cross-border M&As fell from second to fifth globally.”
According to Mr. McKenzie, the decrease in China M&A activities in the U.S. has been greatly affected by the intensified U.S. national security review process of foreign investments. “U.S.-bound investment is a particularly good example,” he said. “The regulatory uncertainties in China and the U.S. national security reviews of Chinese investments both enhance the insecurities, which are among the main factors leading to a significant decline in Chinese investment into the U.S. The interesting thing is, U.S. sellers are more concerned about CFIUS’ review than China’s regulatory approval process. What I want to say is that the Chinese government has simplified the review process of outbound investment to a certain degree.”
Mr. McKenzie also said that the intensified U.S. security review has had a threefold effect on Chinese investment in the U.S. “First of all, if Chinese buyers are eager to get a deal, they will have to consider whether the deal will face pressure from the security review,” he said. “Secondly, Chinese buyers’ willingness to invest is declining. Lastly, it is on the sellers’ side no matter whether they are in the U.S. or in other countries that have tightened their national security reviews; for instance, when the sellers have to choose between Chinese buyers and European buyers, they tend to choose European buyers, as they are less likely to be interfered with by national security reviews.”
Overall, Mr. McKenzie is pessimistic about the short-term outlook for China cross-border M&A, but he still retains an optimistic view of the future. He suggested that in the long term, Chinese companies will accumulate more experience in handling this kind of pressure, while foreign governments will have more experience identifying deals of value to their local communities. For the time being, Chinese outbound investment is experiencing “growing pains.” If the current tension of national security reviews in the target countries can be eased, it would lead to the best development for Chinese companies, which would also improve the efficiency of the transaction process.
When it comes to the trade friction between China and the U.S., Mr. Celniker said: “Until the trade friction between China and the U.S. settles down, it is expected to create an even less favorable environment for Chinese outbound investment because currently some deals which are not involved in national security reviews have also been affected to a certain degree.”