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A man who carries a comet in the form of the Chinese national flag walks along the package while buildings of the Lujiazui Financial District of Pudong in Shanghai, China
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China is beginning to see a rebound in its mergers and acquisition scene after declines as the government’s stimulus measures begin to bear fruit, while the pressure of Donald Trump’s tariffs is also promoting the consolidation of the industry.
In 2024, China’s merger and acquisition activity was ongoing to register its fifth consecutive decline, until the last quarter of the year, which saw a sudden acceleration in the activity. The value of the agreements made during that period increased by 78.5% to $ 129 billion of $ 72 billion in the previous quarter, according to Dealogic data.
And the agreement is about to collect more, according to the observers of the industry with whom CNBC spoke.
The increase in the flow of offers in the fourth quarter of 2024 was partly driven by the stimulus efforts introduced by the policy formulators at the end of September, said Vivian Wong, head of M&A Analytics in Ion Analytics, which is under the same Group that Dealogic. These measures aimed to consolidate national industries to improve competitiveness in China’s deceleration economy, Wong added.
The volume of M&A of China has had a downward trend since 2020. In addition, the total value of the agreements registered in 2024 is approximately 45% less than the $ 553 billion generated in 2020, according to Dealogic data.
This was largely due to the weak general economic activity in China and the resulting bearish feelings, said Theodore Shou, Skybound Capital Investment Director, an alternative asset manager.
The conservative positioning of Chinese corporations also led to less appetite for private market transactions in recent years, he added.
In fragmented industries with players with difficulties, that is another area that will see many consolidations.
However, 2025 “will see significant mergers and acquisition activities that involve China,” Zhe Yu, a partner of Zhong Lun Law Firm, offers legal support for companies and OPI agreements in China.
A coverage against Trump’s tariffs?
In addition to Beijing’s stimulus measures, the gust of tariff threats before the term of the president of the United States Trump and his eventual implementation are also a key driving force for Chinese companies to adapt by diversifying their supply chains and ensuring that they have the means to do so, said Apac M&A De Deloitte’s Apac M & Service Leaders Stanley Lah, who is also the Deputy Financial Advice Leader in China.
Triumph signed an order that imposed 10% tariffs against China February 1. They entered into force on February 4 and will be applied in addition to existing rates of up to 25% in Chinese products collected during their first presidency.
This development will push Chinese companies towards mergers and acquisition transactions while looking for alternative shipping routes to the United States that avoid China as a point of origin, as well as try to be more effective in global markets, said Lah.
“It’s something they need to do quickly, and buying is faster than building a green field,” he added, referring to construction and infrastructure facilities from scratch.
Small businesses in China feel more than this pressure.
In the third quarter of 2024, Micro and small companies in China reported average income of 136,000 yuan ($ 18,700), marking a 4.8% decrease compared to the same period in 2023, according to the University Research Center of the University of Beijing most recent survey In mses.
To stay afloat, many MSE had to reduce hiring and reduce their operations, between a series of cost reduction strategies, according to the survey.
M&A transactions also allow small businesses to compete better at international scale. For example, Chinese safety banks or houses must consolidate and reach enough scale to avoid the reduction of personnel, said Ernst & Young’s OPI-Pacific leader, Ringo Choi.
China saw its greatest wave of rural banking fuses last year, since smaller banks were plagued with weak growth of loans and the increase in bad loans, according to Reuters government data analysis.
“It no longer makes economic sense that small players 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 shou. Chinese companies compete “too force” with each other, what is going down their margins, he added.
The M&A agreements also offer an attractive departure strategy for some of those companies, especially because presenting an OPI in the Chinese values markets becomes increasingly uncertain, said Yu.
Less regulatory obstacles, more financial means
Last September, in an attempt to improve the efficiency of the agreements, the Chinese Securities Regulatory Commission announced that it will simplify its approval processes and reduce the review time for qualified companies. It will also encourage companies to raise capital for their phases and phase acquisition agreements.
Previously, deals manufacturers Faced long periods of approval And he had to deal with extensive demands for disseminating information that came with anti -disease and data security concerns.
While antitrust laws and obstacles remain, the fusion of presentation requirements has been significantly relaxed, said Yu. “Many transactions that would otherwise have been subject to the authorization to present mergers are no longer required to be presented.”
It is likely that interest rates in China also remain at current levels, which can facilitate the cost of financing fusion and acquisitions at a reasonable level, he added.
Companies with a general balance and cash batteries also have the ability to buy companies in a weaker position as an investment, said Lah.
The largest Chinese companies are accumulating large cash reservesWith companies that quote on the Chinese list, which pay a record of 2.4 billion yuan in dividends last year. Goldman Sachs estimates that the cash distribution of Chinese companies could reach $ 3.5 billion of yuan this year to obtain a new maximum.
Large technological companies such as Pinduoduo, a Chinese retailer, currently have a lot of dry dust, which could enter dividend payments, repurchase of sharing and even M&A, observed Ernst & Young’s Choi.
More domestic
A larger portion of the merger agreements of mergers and acquisitions will focus on national transactions instead of transfers, said Elh de Deloitte, a feeling resonated by Shou. Both believe that foreign interest in buying Chinese companies has not yet recovered.
In addition, cross -border mergers and acquisition activities in the high -tech sector are unlikely due to geopolitical factors, said Yu.
Even so, Chinese companies can rescue foreign colleagues at the time of making merger agreements and acquisitions with them, Shou said.
At the national level, some Chinese companies can opt for joint companies in attempts to expand to new markets, Shou said. According to LAH, the “really hot sectors” that are working well, such as technology and green energy, will see money that enters Lah.
Similarly, YU of Zhong Lun Law Firm sees many potential opportunities for mergers and acquisitions in industries related to new energy, such as solar and wind energy and nickel mining, among others.
The less competitive industries and companies could also be allowed to buy as a means to survive, the observers of the industry that CNBC suggested.
A sector that will experience more consolidation is “fragmented industries with players with difficulties,” said Lah, because it is “difficult to make profits like a small business.”
“They need a larger scale” or merger with a company with “a greater performance to survive in this new normality,” he said.
