A man carrying a kite-shaped figure walks along the Bund while the building of Pudong Lujiazui Financial District in Pudong Shanghai
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As the government’s stimulus began to take effect, China began to see a rebound in its merger and acquisition sites, and pressure from Donald Trump’s tariffs was driving the industry to consolidate.
In 2024, China’s mergers and acquisitions activity is logging in for its fifth consecutive year, until the last quarter of the year when activity suddenly accelerated. Dealogic data shows that the value of transactions conducted during this period jumped 78.5% to $129 billion from $72 billion in the previous quarter.
Industry observers CNBC talks to say there will be more deals.
Vivian Wong, head of M&A Analytics at ION Analytics (ION Analytics), said the stimulus efforts proposed by policy makers in late September contributed to the rise in transaction traffic in the fourth quarter of 2024. Wong added that these measures aimed at consolidating domestic industries are to enhance the competitiveness of China’s slowdown.
China’s mergers and acquisitions have been declining since 2020. Additionally, the total transaction value recorded in 2024 is about 45% lower than the $553 billion generated in 2020, according to Dealogic.
Theodore Shou, chief investment officer at Skybound Capital, said this was mainly due to China’s overall economic activity and the consequent bearish sentiment.
He added that the conservative positioning of Chinese companies has also led to a decrease in demand for private market transactions over the past few years.
In an industry where struggling players are fragmented, this is another area where you can see a lot of mergers.
However, in 2025, it will “see major mergers and acquisitions involving China”.
Hedging against Trump’s tariffs?
Deloitte’s Apac Apac M&A said that in addition to Beijing’s stimulus, the tenure of U.S. President Trump and the ultimate series of tariff threats are also Chinese companies that adapt to their supply chains and ensure they have the ability to do so. The key driver of doing so. Service leader Stanley Lah, who is also the deputy leader of the company’s financial consulting firm in China.
trump card Signed an order to impose 10% tariff on China On February 1, they will take effect on February 4 and will be subject to current relevant taxes on Chinese goods levied during his first term.
Rah said the development will consolidate domestic companies as they look for alternative transportation routes to the United States to avoid China as a place of origin and try to become more effective in the global market.
“It’s something they need to do quickly, buying faster than building green places,” he added.
Small Chinese companies feel this pressure the most keenly.
In the third quarter of 2024, micro and small businesses in China reported an average revenue of RMB 136,000 ($18,700), marking a 4.8% decline in the same period in 2023, according to the Center for Enterprise Research at Peking University. Recent Investigations On MSE.
To keep making ends meet, many MSEs have had to reduce hiring and reduce a range of cost-cutting strategies, the survey said.
M&A deals also allow small companies to better compete on an international scale. For example, banks of China or safe houses need to be consolidated and reached a large scale to prevent downsizing, said Ringo Choi, the Asia-Pacific IPO leader at Ernst & Young.
According to China last year, smaller banks were plagued by weak lending growth and non-performing loans, and China saw the largest wave of rural bank mergers. Reuters’ analysis of government data.
“For small players, reinventing the wheels again and again is just to stay in the game and no longer have economic significance, and ultimately they won’t be able to afford them,” said Shou of Skybound Capital. He added that Chinese companies compete with each other, , compete with each other, which is reducing their profit margins.
Yu said the company merger also provides some of these companies with an attractive exit strategy, especially when the Chinese stock market submitting an IPO becomes increasingly uncertain.
Less regulatory barriers, more financial means
In September last year, in order to improve transaction efficiency, the China Securities Regulatory Commission announced that it would simplify its approval process and reduce review time for qualified companies. It will also encourage companies to raise funds for M&A transactions at stages.
Previously a dealer Facing a long-term approval period And the widespread disclosure requirements brought about by antitrust and data security issues must be addressed.
Yu said that although antitrust laws and obstacles remained, the merger application requirements were greatly relaxed. “Many transactions that require no longer need to be liquidated in the merger application.”
He added that interest rates in China may also remain at current levels, which could keep M&A costs at reasonable levels.
Lah said companies with balance sheets and cash piles also have the ability to buy companies in weaker investment forms.
The larger domestic company is Accumulate a lot of cashLast year, the listed company paid a record 24,000 yuan in dividends. Goldman Sachs estimates that Chinese companies’ cash allocations could reach RMB 3.5 trillion this year to raise new highs.
Large tech companies like Pinduoduo, a Chinese online retailer, currently have a lot of dry powder that can invest in dividend expenses, stock buybacks and even mergers, Ernst & Young’s Choi observed.
More domestic mergers and acquisitions
Deloitte responded to this view that a large portion of the upcoming M&A deal will revolve around domestic transactions rather than cross-border transactions. Both sides believe that foreign interests in purchasing Chinese companies have not yet been restored.
In addition, cross-border M&A activities in the high-tech industry are unlikely to be due to geopolitical factors, Yu said.
Still, Chinese companies can save failed foreign counterparts by mergers or acquisitions, Shou said.
Shu said that at home, some Chinese companies may choose joint ventures to expand into new markets. According to Rah, performances of “really popular sectors” such as technology and green energy will come.
Similarly, YU of Zhonglun Law Firm sees many potential merger opportunities in industries related to new energy, such as solar and wind and nickel mining.
Industry observers CNBC talks to suggest that less competitive industries and companies can also serve as a means of survival.
One area that will go through more trades is “a fragmented industry with struggling players” because “it’s hard to make a profit as a small company.”
“They need a bigger scale,” he said, or merge with a company, “surviving bigger under this new normal.”
