Cross-border M&A in mainland China amidst dual circulation and a new regulatory environment

Foreign direct investment (FDI) has been, and continues to be, a subject of fundamental importance to the development of economies worldwide, including mainland China. This paper focuses on the inbound investment opportunity into mainland China, specifically through mergers and acquisitions (M&A), amidst a backdrop of continuing economic growth and regulatory change in China’s domestic economy and polity.

Key takeaways

The paper is divided into three sections, summarised below:

Section 1 includes a review of the new Foreign Investment Law (FIL) and associated laws and regulations that support, regulate and encourage foreign investment into mainland China.
Section 2 is a review of how dealmaking by foreign investors has changed in the light not only of the FIL coming into force on 1 January 2020, but also the backdrop of the Covid-19 pandemic of 2020. Some of the major trends we identify include a strong recovery in mainland Chinese inbound M&A in 2020 despite a fall in the first quarter of 2020, and significant activity in sectors such as new energy, consumer and retail, healthcare, industrials, automotive and high technology. This reflects the development of both the consumer side and the production side of mainland China’s economy, which will continue in light of the renewed focus on “dual circulation”; and increasing international diversification among acquirors of, and investors in, mainland Chinese businesses.
Section 3 of this report suggests areas of consideration for policymakers and dealmakers in light of these findings.

This publication was produced by Linklaters LLP and first published in conjunction with the China Development Forum on 19 March 2021. This version has been slightly modified from the original version for the purposes of re-publication.