Chinese investment in Europe and North America retreated in 2017 in tandem with China's posting its first fall in foreign direct investment globally since 2006 as stricter rules were imposed.
Chinese FDI into North America fell sharply by 35 percent to $30 billion last year as the government unveiled policies restricting outbound investment, said a report of global law firm Baker McKenzie's and consulting company Rhodium Group.
Although FDI into Europe soared 76 percent to $81 billion, the growth was solely due to the delayed completion of ChemChina's record US$43 billion takeover of Swiss agribusiness company Syngenta. If this mega deal had not been completed in 2017, Chinese investment in Europe would have tumbled 22 percent to US$38 billion.
But the figures backed up official Chinese data showing that the country's global FDI flows had fallen by over a third in 2017 — the first drop since 2006.
"The main reason for the fall was guidelines introduced by the Chinese government imposing additional restrictions on outbound investment to address balance of payment concerns and mitigate perceived risks for China's financial system arising from rapid overseas investment," Baker McKenzie said.
Additionally, Chinese FDI faced growing regulatory scrutiny in many host countries. The Committee on Foreign Investment in the U.S. was especially strict in its monitoring that at least seven major deals were impacted greatly, according to the report.
Also Chinese capital controls introduced in late 2016 greatly slashed the average size of deals announced in 2017 across all industries and investor types. The deals fell from $626 million in North America in 2016 to $282 million last year, and in Europe they declined from $346 million in 2016 to US$162 million.
"The momentum of deals involving Chinese investors dropped sharply from Q3 2016 to the first half of 2017," said Mike DeFranco, global head of M&A at Baker McKenzie.
"Now that it is clear how the rules have changed for Chinese investors at home and abroad, activity is picking up, and 2017 was still the second-best year on record in North America and technically the best in Europe, despite all the challenges for dealmakers," he said.
Chinese investors, however, cancelled or withdrew 19 announced deals worth over $12 billion in North America and Europe in 2017, compared with 30 deals cancelled in 2016.
