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China M&A: Cross-border deals worth $75bn were cancelled in 2016, Baker McKenzie and Rhodium say

Kedar Grandhi
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The value of cancelled Chinese overseas acquisition deals stood at $75bn (£60.07bn) in 2016, which was over seven times the $10bn worth of scrapped deals seen in 2015, according to an analysis by law firm Baker McKenzie and researcher Rhodium.

The analysis showed that regulatory and foreign exchange restrictions led to the failure of 30 Chinese acquisitions with European and US companies. While 10 US deals worth $58.5bn were scrapped, Europe saw 20 deals worth $16.3bn being cancelled.

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One of the examples cited with reference to China-US deals was a Chinese consortium's $3bn offer for US-based lighting unit of Philips. The analysis noted that this deal failed amid restrictions from the US Committee on foreign investment.

German-based company Aixtron and Chinese investors also had a failed deal last year. The latter had proposed to take over the chip equipment maker for €670m (£578.21m).

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China's foreign exchange watchdog is said to have imposed most restrictions in 2016 over cross-border deals. This, the analysis said was part of its efforts to save its currency reserves, which declined by $320bn in 2016.

Chinese regulators have reportedly vowed to curb "irrational" acquisitions and scrutinise all deals worth more than $1bn and also those that are outside the core business of an investor.

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Authorities are closely monitoring cross-border deals across sectors such as land, hotels, film production and entertainment. An example in this regard was the failed $14bn takeover of America's Starwood Hotels & Resorts by China's Anbang Insurance.

Apart from regulatory hurdles, several companies in Europe and the US have also become cautious of making large deals with Chinese firms, said people familiar with cross-border transactions.

"The Chinese are getting more professional but sellers are giving more priority to potential buyers outside China because of the restrictions imposed on capital," one of the persons was quoted as saying by the Financial Times.

The analysis showed that all was not negative for the world's second biggest economy. Chinese foreign direct investment into the US and Europe stood at a record $94.2bn in 2016, which is two times the FDI seen in 2015.

Expectations that the renminbi would weaken further against the US dollar and the slowing domestic growth in the country is said to have led Chinese investments elsewhere in 2016.

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