European Dealmaking In China Expected To Be Bolstered By Investment Deal

Following the signing of an investment deal last month between China, the second largest economy of the world, and the European Union, lawyers and bankers are expecting to see European companies to eagerly look out for investing in assets in China, particularly in the insurance, healthcare and automobile sectors.

According to experts, it is likely that one more year will be needed to implement the deal which tool almost seven years to reach and includes a pledge from China to open up more of its market. It was not immediately clear whether the agreement gives more importance and scope for mergers and acquisitions between companies of China and the EU.

However according to bankers, there will be an uptick in time in the inbound deal investments in China which have been restricted and relatively small compared to the size of the country’s economy because of barriers to entry for foreign capital.

“The EU-China Comprehensive Agreement on Investment (CAI) will certainly facilitate the FDI, including M&A, by EU investors into China,” said Cherrie Shi, a senior counsel at law firm FenXun Partners, Baker McKenzie’s Joint Operation partner.

Shi said that EU investors will have “more certainty and predictability” for their investment because of the deal.

According to data from Refinitiv, over the past three decades, the total value of mergers and acquisitions of EU companies into China amounted to $71 billion which was much smaller than the total M&A value in China for American companies in the same period at $117 billion.

European companies will be allowed to operate in China in the areas of electric cars, telecom cloud services and some specific activities related to air and maritime transport according to the deal that was struck on December 30.

The European companies will now also be able to have fully owned business units in the automotive sector, many financial services, private hospitals, advertising, real estate and environmental services, such as sewage., according to the deal.

“These are the major growth areas with massive amounts of investments. EU companies are pretty keen to get a piece of the action,” said Alan Wang, Partner at law firm Freshfields Bruckhaus Deringer.

Wang said that the Chinese market, particularly healthcare and pharmaceutical sectors, will be very attractive for investors from eth EU because of China’s economic recovery from the novel coronavirus pandemic unlike most major economies that are currently reeling from the measures imposed to prevent the spread of Covid-19,

There is already a growing interest among European investors in the auto and financial services sector of China – which the country had opened up to foreign companies even before the deal with the EU. According to previous reports, control of their China joint ventures has already been taken by European car majors like BMW, Volkswagen and Daimler.

“An increasing number of international buyers, primarily from Europe, are lining up to break into China,” said Samson Lo, head of Asia M&A at UBS.

“The big question really comes down to implementation,” said Freshfields’ Wang. “In practice, what are the practical local barriers you might still face from a regulatory process that is something difficult to foresee.”

(Adapted from BusinessWorld.in)



Categories: Creativity, Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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