Slow recovery in China weighs on all of APAC

Through the first half of 2023, the global economy demonstrated that it was much more resilient than most might have expected, with the threat of recession failing to metastasize into full-blown economic contraction.

However, sticky inflation, higher interest rates, geopolitical tensions, and China’s lackluster post-pandemic economic recovery did lead to a softening of APAC M&A activity. Strained Sino-US relations, despite some efforts at reconciliation by Beijing and Washington, also weighed heavily on dealmaking.

Chinese Premier Li Qiang pledged targeted measures to stimulate his country’s economy after a raft of data suggested its post-pandemic bounce back was losing steam. His comments followed a surprise interest rate cut by China’s central bank in June, aimed at easing the burden on over-indebted local governments, property developers, and households.

Consumers short on confidence

China’s economy expanded at a slower-than-expected pace of 6.3% year-on-year in Q2 from a low base. This has raised some doubts over whether the country will comfortably meet its 5% growth target for 2023. Weak GDP growth was attributed to lackluster service-sector focused domestic demand, according to the latest PMI data, and a deceleration in consumer spending growth, according to data for June released by the National Bureau of Statistics. Retail sales rose 3.1% in June from a year earlier, down from 12.7% in May.

Investment banks’ advisory fees slumped to the lowest level in almost a decade as the industry suffers from job cuts linked to a prolonged slowdown in deal activity. Bankers in the APAC region earned US$1.4bn in fees from completed M&A deals, down 44% compared to the same period last year, representing a decade low, according to Refinitiv data. The rising cost of debt and uncertainty over the economic outlook has widened the valuation gap between buyers and sellers.

However, while there was a slowdown in activity, the M&A market did demonstrate resilience in the context of rising interest rates to tame multi-decade high inflation across many regions. Mid-market deals sustained the market as companies pursued strategic growth agendas and sector consolidation, responding to initiatives tied to ongoing digitalization, decarbonization, supply-chain optimization, and, most recently, advances in generative artificial intelligence (AI).

Published in association with Datasite, Deal Drivers APAC provides an in-depth review of M&A activity in 2023, as well as an outlook for the year ahead.

The report is also available on datasite.com.