Chinese Deals in Europe Fall as EU Slowly Ramps Up Screening
Chinese Deals in Europe Fall as EU Slowly Ramps Up Screening
(Bloomberg) -- Chinese dealmaking in Europe fell sharply in the last two years, according to a European Commission report that shows some European governments are still slow to roll out more screening of foreign deals and investments.
While 24 nations either have rules in place or are working on them, three EU states -- Bulgaria, Croatia and Cyprus -- haven’t announced any legislation to scrutinize outside investments.
China’s merger and acquisition transactions fell 63% in 2020 from the previous year and made up just 2.5% of all deals compared to 4% the previous year, the report said. The decline seems to be independent of the pandemic, since it started in November 2019, two months before the first coronavirus restrictions, and hasn’t picked up significantly as economies opened up again.
China is the fourth biggest source of M&A for the region, far behind the U.S., U.K. and Switzerland, the report says.
‘Annus Horribilis’
“2020 has been an annus horribilis almost everywhere in the EU,” the report said.
Foreign direct investment flows to the EU fell to 98 billion euros ($110 billion) last year, 71% from the previous year and well below the 335 billion euros the region attracted in 2018. Last year’s drop outpaces a 35% fall globally in foreign investment to 885 billion euros.
The number of foreign M&A deals fell by 34% last year. Manufacturing accounts for a quarter of foreign deals and suffered a 40% drop and still has a “cloudy outlook,” the report says. U.S. investors target technology and research activities, it says.
Some 16 nations have rules in place for reviews of foreign direct investment, including France, Germany, Spain and Italy. Sweden, Belgium, Estonia, Greece, Ireland and Luxembourg are still working on rules. The Netherlands and Portugal are planning to amend existing rules.
The report shows there’s some confusion from investors about which deals need screening. Out of 1,793 investments reviewed by governments, 80% didn’t get formal screening. Only 2% of the projects they scrutinized were vetoed, and 91% were approved, some with conditions, while the remainder were withdrawn by the companies.
It also shows “significant disinvestments” in the Netherlands last year where foreign investments contracted and a large reduction in investments, mainly from the U.S., in Ireland. Both countries have been under EU pressure to change corporate taxation practices.
The report also tracked how many governments had stakes in foreign investments, which foreshadows a separate EU proposal to scrutinize foreign subsidies. The Russian state has a “very significant average presence” in deals from Russian investors. Chinese deals have an average public stake of 25%.
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