A China Business Law Journal survey of law firms around the world shows a protracted US-China trade war and a bevy of international and domestic political developments have dealt a blow to Chinese outbound investment. Mithun Varkey reports
Chinese business have become more selective and cautious about their investment in light of increasing economic and geopolitical risks around the world, which have led to a decline in outbound deal-making.
Chinese outbound investments fell 10% (US$143 billion) in 2018, according to data from China’s Ministry of Commerce, while an Ernst & Young report from August this year noted that overall outbound investment in the first half of 2019, at US$54 billion, was down 8% year-on-year.
“Outbound Chinese investment has been slowing considerably this year,” says Ulrike Glueck, managing partner of CMS Law in Shanghai. “So far, we have not experienced much impact form the trade war on our business. However, this is probably due to the reason that lawyers’ work is always at the end of the business pipeline, and existing projects are not impacted.
“However, due to the trade war and other reasons, globally, GDP growth is shrinking and some countries are already moving towards a recession. Thus, I expect 2020 to become a more difficult year,” says Glueck.
While there is a consensus about a slowdown in China-related work across regions, Europe seems to have seen the most impact. The effect of the trade war has been compounded by a surge in protectionism and increased scrutiny of inbound deals in Europe.
“The trade war has added additional uncertainties for Chinese investors … it began at a time where European [including German] legislators tightened their thresholds for approving foreign investment, in particular with regard to high-tech industries,” says Mark-Alexander Huth, a partner at German law firm Schulz Noack Bärwinkel (SNB).
“To make things worse,” he adds, “the Chinese foreign exchange regime added further difficulties to Chinese outbound investments with regard to their financing. This all seems to have had a negative impact on the motivation of Chinese investors, and resulted in an immediate slowdown of German-Chinese M&A transactions this year.”