In recent years, global economic uncertainty—amplified by the outbreak of the COVID-19 pandemic—has led many countries to tighten foreign investment screening, particularly around strategic sectors. Fears of foreign investors acquiring undervalued domestic assets at distressed prices have driven policy changes across Europe and North America. However, new research by Baker McKenzie and Rhodium Group reveals a different story when it comes to China: foreign interest in Chinese assets has not only held steady but, in some cases, intensified.
Despite global disruptions, foreign direct investment (FDI) into China has demonstrated resilience. In the first five months of 2020 alone, inbound merger and acquisition (M&A) activity totaled $9 billion—marking the first time in a decade that foreign acquisitions in China surpassed outbound Chinese deals in both volume and value. This shift underscores a growing confidence among multinational corporations, particularly from the U.S. and Europe, in the long-term potential of the Chinese market.
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Why Are Foreign Investors Still Bullish on China?
1. Confidence in China’s Rising Middle Class
While short-term consumer spending dipped during the pandemic, international firms continue to bet on China’s long-term consumption trends. The country’s expanding middle class—projected to reach over 550 million by 2025—remains a powerful magnet for global brands.
A prime example is PepsiCo’s $700 million acquisition of Chinese snack brand Baichaoyuan (Bestore) in early 2020. The deal allowed PepsiCo to strengthen its position in the fast-growing healthy snacks segment, tapping into evolving consumer preferences for convenient, high-quality food products. This strategic move reflects a broader trend: foreign companies are no longer just selling to China—they’re investing in China by acquiring local champions with strong brand recognition and distribution networks.
2. Liberalization of Foreign Ownership Rules
One of the most significant drivers behind increased inbound M&A is China’s ongoing financial and regulatory liberalization. Over the past few years, Beijing has systematically lifted foreign ownership caps across key industries, including automotive, financial services, and asset management.
For instance:
- Volkswagen secured majority control of its joint venture with Anhui Jianghuai Automobile Group (JAC) for $1.1 billion, positioning itself to lead China’s electric vehicle (EV) market.
- JPMorgan Chase moved to take full ownership of its Chinese mutual fund joint venture, paying approximately $1 billion—a clear signal of confidence in China’s capital markets.
These transactions highlight a pivotal shift: foreign firms are transitioning from minority partners to full controllers, enabling faster decision-making and greater alignment with global strategies.
3. Chinese Firms Emerging as Strategic Targets
Historically, Western companies entered China through greenfield investments or joint ventures. Today, they are increasingly viewing Chinese enterprises not just as partners or competitors—but as attractive acquisition targets.
Take Volkswagen’s planned $1.2 billion investment to acquire a 26% stake in Gotion High-Tech, a leading Chinese battery manufacturer. This deal gives Volkswagen direct access to cutting-edge battery technology and strengthens its EV supply chain—a critical advantage in the race toward electrification.
This trend reflects a maturation of China’s industrial ecosystem. From fintech to renewable energy, Chinese firms now lead in innovation and scale, making them valuable assets for global players seeking technological edge and operational efficiency.
"China’s leadership in sectors like EVs, digital payments, and advanced manufacturing is reshaping global M&A dynamics," says Aiqing Qu, Head of M&A at Baker McKenzie China. "International companies see acquisitions as a faster route to market leadership than organic growth."
Sectors Attracting Strong Inbound Investment
While consumer goods and technology dominate headlines, other sectors are also seeing robust foreign interest:
- Financial Services: Regulatory easing has opened doors for foreign banks and asset managers. JPMorgan’s full acquisition is part of a wave that includes BlackRock and Fidelity establishing wholly foreign-owned fund management entities.
- Logistics & Infrastructure: Global logistics giant GLP acquired logistics real estate assets in Central and Eastern Europe from Cainiao-linked Campania for $1.1 billion—part of its broader strategy to expand its cross-border supply chain footprint.
- Technology & Data Platforms: Though not an inbound deal, the acquisition of CoinMarketCap by Binance for around $400 million highlights the value international investors place on data-rich digital platforms originating from China.
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Chinese Outbound Investment: Selective but Strategic
While inbound FDI surged, Chinese outbound M&A activity slowed significantly in early 2020 due to regulatory scrutiny and capital controls. However, certain sectors remained resilient:
- Financial & Business Services: Chinese firms announced $1.3 billion in new acquisitions abroad during January–May 2020. Notable deals include Fosun International’s subsidiary Hauck & Aufhäuser acquiring German private bank Bankhaus Lampe for $280 million.
- Logistics & Infrastructure: Outbound investments totaled $1.2 billion, led by GLP’s acquisitions in Europe and its $371 million purchase of a 40% stake in Hong Kong-based Li & Fung Limited.
These moves reflect a more disciplined approach: rather than broad expansion, Chinese investors are focusing on high-value, synergistic assets that enhance global integration.
Frequently Asked Questions (FAQ)
Q: Is foreign investment in China still growing despite geopolitical tensions?
A: Yes. While U.S.-China tensions have impacted tech and national security-related sectors, consumer, automotive, and financial services continue to attract strong foreign capital due to market size and reform momentum.
Q: What industries are most open to foreign ownership now?
A: China has fully or partially lifted ownership limits in automobiles, banking, securities, insurance, and private fund management. The 2020 Negative List for Foreign Investment further reduced restrictions across multiple sectors.
Q: Are Chinese tech companies still attractive acquisition targets?
A: Absolutely—especially those with proprietary technology in EVs, AI, clean energy, and digital infrastructure. Foreign firms seek not just market access but innovation partnerships.
Q: How does China’s regulatory environment affect M&A deals?
A: While antitrust reviews have tightened globally, China’s regulatory reforms have made it easier for foreign firms to enter and scale. However, national security reviews are becoming more prominent for sensitive technologies.
Q: What role do joint ventures play now?
A: They’re becoming less common as foreign firms opt for full control. However, JVs still serve as entry points in highly regulated or capital-intensive sectors.
Q: Can foreign investors profit from China’s digital economy?
A: Yes—through strategic stakes in tech-enabled firms or partnerships with local leaders. Regulatory clarity around fintech and data governance remains key.
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Conclusion
Far from retreating, global investors are recalibrating their strategies around China’s evolving economic landscape. Regulatory openness, consumer growth, and technological maturity have transformed the country from a manufacturing hub into a high-value investment destination.
As inbound M&A outpaces outbound deals, one message is clear: confidence in Chinese assets remains strong—not because of short-term gains, but because of long-term structural advantages. For international businesses willing to navigate complexity and build local capabilities, China continues to offer some of the most compelling opportunities in the global marketplace.
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