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Up to $75bn Chinese outbound deals scrapped in 2016

Regulatory concerns over foreign ownership of strategic businesses have helped derail transactions accounting for a third of outbound investment last year.

Out of the $220 billion in Chinese outbound investment announced in 2016, between $40 billion and 75 billion was either blocked by regulatory authorities or withdrawn by investors, Linklaters has found.

In a report released this week, the law firm said many of the delayed or cancelled deals were considered by the host government as “critical” or “significant” to national security or national interest because they were targeting sectors including energy infrastructure, high-end technology or electronics. 

Recent assets that ended up not being sold to original bidders include Australia's Ausgrid, German equipment maker Aixtron and light engine manufacturer Lumileds in the US. 

“The increasing regulatory scrutiny of Chinese outbound M&A reflects a threefold trend: an increase in deal volume, Chinese acquirers' increased targeting of potentially sensitive sectors and a marked shift in the political mood and evolving policy concerns of regulators,” commented Fang Jian, a Shanghai-based managing partner at the firm. 

In addition to the national security dimension of foreign ownership and more intensive scrutiny of investments in regulated or strategically important sectors, the report also highlighted that the lack of reciprocity over cross-border investment had also helped derail transactions.

Linklaters noted that for Chinese outbound M&A in particular, regulatory approval may also present a hurdle, especially for investments not seen as in line with the acquirer's core business.