Just how big has the decline in acquisitions been?
A study published Tuesday by consultancy EY shows that China’s mergers and acquisitions in Europe dipped by 21 percent last year with a total of 196 M&A deals registered in 2018.
In Germany alone, the number of investment deals sank from 54 to 35 last year.
The decline in Chinese investment activities on the Continent was particularly dramatic in the second half of 2018 when the number of acquisitions decreased by 26 percent, and the number of investments in Germany plunged by a staggering 60 percent.
There were only 10 Chinese transactions in Germany in the final six months of last year, with the number of takeovers hitting low levels last seen in the first half of 2013.
Is the falling number of acquisitions reflected in investment volumes?
Pretty much yes. Overall Chinese investment volumes in Europe last year tanked by 46 percent to reach $31.2 billion (€27.3 billion).
Roughly one-third of that money flowed to Germany where the Chinese invested $10.7 billion, marking a 22 percent decline.
China’s biggest deal in Germany was also China’s largest investment Europe-wide, notably the estimated $8.7 billion investment by carmaker Geely in German auto manufacturer Daimler.
What are the primary reasons for the investment lull?
The reasons for the slowdown are manifold. While heightened security concerns in the West and fears of a sell-out of crucial industries have played a significant role, there are other factors that have contributed to the recent trend reversal.
There’s a changing economic environment in China itself where the government in Beijing is bending over backward to prevent an excessive outflow of capital and save it for investment in crucial, future-oriented industries in line with its long-term economic policy.
On top of that, the Chinese economy has been slowing, also as a result of the ongoing US-China trade conflict. Companies burdened with considerable debt have become more cautious in their foreign investment policies.
Which European nations remain in China’s focus despite the slowdown?
You may have guessed it — Germany remains highest on the agenda for Chinese investors’ European activities. The United Kingdom is a close second with only one transaction less in 2018.
Other important European target markets for Chinese investments are Italy (20 deals in 2018) and France (16 deals last year).
Have Chinese investors changed their investment focus because of the more difficult environment?
In 2018, Chinese investors bought only 39 industrial firms in Europe, down from 79 in the previous year. Likewise, there were fewer transactions in the high-tech sector where the number declined from 32 to 22.
What’s obvious, though, is that the number of investments in European consumer goods and services companies rose by over 100 percent, from 13 to 27, to be precise.
“There’s a rapidly growing middle class in China, with people increasingly able to buy and consume more,” the study says. “That’s why Chinese investors have for three years or so been focusing more on making deals with renowned European producers of consumer goods.”
EY researchers also noted that they expected more transaction in the field of e-commerce, with European market players interested in profiting from Chinese know-how in modern logistics and the integration of artificial intelligence applications.
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