China M&A activity set to rise as companies prepare for Trump tariffs

[Pelican Press 0]

This is the hidden content, please

• Sign In
• or
• Sign Up

China M&A activity set to rise as companies prepare for Trump tariffs

A man carrying a kite in the shape of the ******** national flag walks along the Bund while buildings of Pudong’s Lujiazui financial district  in Shanghai, China

Bloomberg | Bloomberg | Getty Images

China is starting to see a rebound in its mergers and acquisition scene after years of decline as the ******** government’s stimulus measures start to bear fruit and pressure from Donald Trump’s tariffs mounts.

In 2024, China’s M&A activity was on course to log its fifth straight year of decline, until the final quarter of the year, which saw a sudden acceleration in activity. The value of deals conducted during that ******* jumped 78.5% to $129 billion from $72 billion in the previous quarter, data from Dealogic showed.

And the pace in deal-making is about to pick up even faster, according to industry watchers whom CNBC spoke to.

The uptick in deal flow in the fourth quarter of 2024 was in part fueled by stimulus efforts introduced by policymakers in late September, said Vivian Wong, head of M&A Analytics at ION Analytics, which is under the same group as Dealogic. Those measures aimed to consolidate domestic industries in order to enhance competitiveness in China’s slowing economy, added Wong.

China’s M&A volume has been trending downward since 2020. Furthermore, the total value of deals logged in 2024 is about 45% less than the $553 billion generated in 2020, according to data from Dealogic.

This was largely because of weak overall economic activity in China and the ensuing bearish sentiments, said Theodore Shou, chief investment officer at Skybound Capital, an alternative assets manager.

The conservative positioning of ******** corporations also led to less appetite for private market transactions in the past couple of years, he added.

In fragmented industries with struggling players, that’s another area that will see a lot of consolidations.

However, 2025 will “see significant merger and acquisition activities involving China,” Zhe Yu, a partner at Shanghai-based Zhong Lun Law Firm, which offers legal support for M&A ventures and IPO deals in China, told CNBC. 

A hedge against Trump tariffs?

Apart from Beijing’s stimulus measures, the flurry of tariff threats before U.S. President Trump’s term and their eventual implementation are also a key driving force for ******** companies to adapt by diversifying their supply chains and ensuring they have the means to do so, said Deloitte’s APAC M&A Services Leaders Stanley Lah, who is also the firm’s deputy leader of financial advisory in China.

Trump signed an order imposing 10% tariffs against China on Feb. 1. They came into effect Feb. 4 and will apply on top of the existing tariffs of up to 25% on ******** goods levied during his first presidency.

That development will nudge ******** companies toward M&A transactions as they look for alternative shipping routes to the U.S. that avoid China as a point of origin, as well as try to become more effective in global markets, Lah said.

“It’s something they need to do quickly, and buying is faster than building a green field,” he added, referring to building facilities and infrastructure from scratch.

This pressure is most keenly felt by small companies in China.

In the third quarter of 2024, China’s micro and small enterprises reported average revenue of 136,000 yuan ($18,700), marking a 4.8% decline compared with the same ******* in 2023, according to Peking University’s Centre for Enterprise Research’s

This is the hidden content, please

• Sign In
• or
• Sign Up

on MSEs. 

To stay afloat, many MSEs had to cut back on hiring and shrink their operations, among a slew of cost-cutting strategies, the survey said.

M&A transactions also allow small companies to better compete on an international scale. For example, ******** banks or security houses need to consolidate and attain a large-enough scale to prevent downsizing, said Ernst & Young’s Asia-Pacific IPO Leader Ringo Choi. 

China saw its biggest wave of rural bank mergers last year as smaller banks were plagued by weak loan growth and increasing bad loans, according to

This is the hidden content, please

• Sign In
• or
• Sign Up

.

“It no longer makes economic sense for small players to reinvent the wheels again and again just to stay in the game and ultimately, they will not be able to afford that,” said Skybound Capital’s Shou. ******** companies are competing “too forcefully” with each other, which is lowering their margins, he added.

M&A deals also offer an attractive exit strategy for some of those companies, especially as filing an IPO in the ******** stock markets becomes increasingly uncertain, Yu said.

Fewer regulatory hurdles, more financial means

Last September, in a bid to enhance deal-making efficiency, the China Securities Regulatory Commission announced that it will simplify its approval processes and cut down the review time for qualified companies. It will also encourage firms to raise capital for their M&A deals in phases. 

Previously, deal-makers

This is the hidden content, please

• Sign In
• or
• Sign Up

and had to contend with extensive information disclosure demands that came with antitrust and data security concerns.

While antitrust laws and hurdles remain, merging filing requirements have relaxed significantly, Yu said. “Many transactions that would otherwise have been subject to merger filing clearance are no longer required to be filed.”

Interest rates in China are also likely to remain at current levels, which may facilitate M&A financing cost at a reasonable level, he added.

Companies with a stronger balance sheet and cash piles also have the capacity to buy out firms in a weaker position as a form of investment, said Lah.

******* ******** companies are accumulating large reserves of cash, with ********-listed firms paying out a record 2.4 trillion yuan in dividends last year. Goldman Sachs estimates that ******** companies’ cash distribution could hit $3.5 trillion yuan this year to notch a new high.

Big tech companies like Pinduoduo, a ******** online retailer, currently have a lot of dry powder, which could go into dividend payouts, share buybacks and even M&A, Ernst & Young’s Choi observed.

More domestic M&A

A larger portion of the incoming M&A deals will center around domestic transactions rather than cross-border ones, said Deloitte’s Lah, a sentiment echoed by Shou. Both believe that foreign interest in buying ******** companies has yet to recover.

Moreover, cross-border M&A activities in the high-tech sector is unlikely because of geopolitical factors, said Yu.

Still, ******** companies may bail out failing foreign peers by conducting M&A deals with them, said Shou.

Domestically, some ******** companies may opt for joint ventures in attempts to expand to new markets, Shou said. The “really hot sectors” which are doing well, such as technology and green energy, will see money coming in, according to Lah.

Similarly, Zhong Lun Law Firm’s Yu sees many potential M&A opportunities in industries related to new energy, such as solar and wind energy and nickel mining, among others.

Less competitive industries and companies could also let themselves be bought out as a means to survive, the industry watchers whom CNBC spoke to suggested.

One sector that will experience more consolidation is “fragmented industries with struggling players,” Lah said, because it’s “difficult to make profits as a small company.”

“They need a ******* scale,” or merge with a company with “******* performance to survive in this new normal,” he said. 

This is the hidden content, please

• Sign In
• or
• Sign Up

#China #activity #set #rise #companies #prepare #Trump #tariffs

This is the hidden content, please

• Sign In
• or
• Sign Up

This is the hidden content, please

• Sign In
• or
• Sign Up