Chinese outbound investments in technology, media and telecom companies have steadily decreased since 2016, data compiled by S&P Global Market Intelligence shows. The value and number of transactions with the U.S. in particular could fall further, analysts said.

The decline in outbound investment was mainly due to restrictions on capital outflow imposed by the Chinese government.

After encouraging domestic companies to expand globally, China started to scrutinize outbound deals in 2016 to maintain the level of the country’s foreign exchange reserves, according to media reports and analysts.

“It has become difficult for companies to seek approval for overseas acquisitions from the relevant authorities, as well arranging loans of conversion of [Chinese yuan] into foreign currencies for financing options,” Wilson Chow, PwC global TMT industry leader, said in a written response.

Deteriorating U.S.-China relations also hurt outbound investment, William Chuang, Asian equity portfolio manager at AXA Investment Managers, said.

Since 2016, the U.S. has been the top recipient of Chinese TMT outbound investment in terms of the number of transactions, which totaled 56. Hong Kong and the U.K. followed with 32 and 22 deals respectively, the data showed.

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In terms of transaction value, the U.S. has also been the largest market for Chinese outbound M&A, attracting US$17.80 billion in total. Finland follows with US$8.66 billion and Hong Kong with US$8.51 billion.

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According to the Committee on Foreign Investment in the United States, which reviews the national security risks of foreign investments in the U.S., the number of Chinese transactions dropped significantly between 2017 and 2019. Whereas 60 Chinese transactions were reviewed by CFIUS in 2017, just 25 were two years later.

CFIUS has increased its scrutiny of M&A deals involving Chinese buyers, leading to the forced divestment of Grindr LLC, the popular gay dating app, from Beijing Kunlun Tech Co. Ltd. and the ban on Beijing Byte Dance Telecommunications Co. Ltd.’s video-sharing app TikTok Inc.

Meanwhile, Chinese semiconductor companies including Semiconductor Manufacturing International Corp. have been threatened with U.S. bans.

Regulatory risk will result in reduced Chinese investment in “sensitive technology” overseas, experts said.

Reduced M&As in these sectors “will likely be one of the hallmarks of de-globalization in the future years,” Yao Aidan, senior emerging Asia economist at AXA Investment Managers, said.

The “restrictions on investment, company sanctions, legal lawsuits, political interference, forced selling, etc. have fundamentally changed the rule of the game in the [tech] industry and greatly raise the risk of internationalizing tech supply-chains,” Yao said. Chinese companies will place more emphasis on the domestic market and fostering innovation within that region, he said.

The semiconductor sector will remain a “key focus” for Chinese domestic investment, Chuang said. “Other areas that [interest domestic investors] will be around fintech and e-commerce,” he said.

Leading overseas buyers such as Tencent Holdings Ltd. will have to shift their global expansion strategies in response to the changing environment.

Tencent’s US$8.6 billion acquisition of Finnish game studio Supercell Oy was the largest deal since 2016, making Tencent the largest Chinese overseas investor.

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As the U.S. is planning to block Tencent’s popular messaging app WeChat and probing the company’s investments in the U.S. gaming studios, analysts suggested Tencent focus more on the domestic market, or explore new investment targets in less politically risky regions such as the Middle East and Southeast Asia.

Chow noted Chinese TMT companies tend to follow the map of China’s “Belt and Road” initiative for future investments. The initiative, announced by Chinese President Xi Jinping in 2013, aims to foster infrastructure and trading collaborations between China and countries in regions including Asia, Africa and the Middle East.

“Most of these countries are behind China in TMT industry developments and may result in many Chinese companies ‘exporting’ their technologies, products and services,” Chow added.



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