Why has Chinese dealmaking fizzled out? Due Diligence’s dynamic duo, James Fontanella-Khan and Arash Massoudi, answer this question in a brilliant comic book style video.
But how we got here is a longer story. It starts with the election as US president of Donald Trump, who comes into office in January 2017 vowing to combat unfair Chinese trade practices. In August 2017, Jim Brunsden, the FT's EU correspondent, has a scoop on the European Commission's plan to call for more rigorous screening of foreign takeovers of European companies. Brussels' attempt to address mounting concerns about a surge of Chinese investment into the EU’s high-tech manufacturing, energy and infrastructure sectors is followed six months later by a call from Peter Altmaier, Germany’s newly installed economy minister, for the creation of a state investment fund that could pre-empt foreign takeovers of big German companies.
On July 25 2018, the word “China” appears only once in a 120-page policy document released by the UK with the aim of enhancing the government’s powers to prevent foreign purchases of security-sensitive British assets, say FT reporters writing from London and Beijing. But several UK officials confirm the proposals' main target is Beijing's frenzy of overseas dealmaking. “There’s no particular panic," says a senior UK official, "but there have been one or two cases where Chinese companies have been able to buy assets in a way that gets around the [existing UK scrutiny arrangements].”
Less than a week later, Due Diligence reports that "dealmaking is becoming politicised, fast" with Beijing signalling a tit-for-tat move. New draft requirements from the Chinese commerce ministry would impose expanded national security rules on foreigners trying to acquire “strategic” stakes in Chinese companies.
Last but not least, in October 2018, the Trump administration announces it will broaden reviews of foreign investments in critical US technologies. Expanding the power of CFIUS, the body that vets foreign deals, follows a vote by Congress to protect American know-how from foreign powers including China by giving government the ability to scrutinise and block even small minority foreign investments into sensitive technologies.
By the end of 2018, global data show that dealmaking has decelerated rapidly from the record pace seen at the start of 2018, with the final three months of last year set to be the quietest period for mergers and acquisitions since the third quarter of 2017.