Multinational companies (MNCs) are likely to continue strategic reviews of their China portfolios in the face of ongoing disruption in the country, born of rapid technological advancement, new business models and the competitive landscape, coupled with a complex and changing regulatory environment.
The value of MNCs’ China divestments peaked in 2021 at a total deal value of USD 312.8bn, a rise of 17.4% from 2020, marking the highest level on Dealogic record. On average, 91% of MNC divestures since 2016 have been acquired by Chinese firms, per Dealogic data.
As China’s demographic dividend ebbs away, with the birth rate dipping to its lowest point since 1960, foreign enterprises are reassessing the country’s growth story. In June 2021, British consumer goods company Reckitt Benckiser Group sold its infant formula business in Greater China to Chinese private-equity firm Primavera Capital for over USD 2bn.
U-turn if you want to
The market share of MNCs in China is reversing a long upward trajectory, particularly in the consumer and retail sectors, which have struggled to replicate local firms’ ability to swift pivot to digital and live-streaming sales platforms over the past decade.
Consumer, industrials, technology, and transportation were among the most divested sectors in 2021. MNCs from the US, Australia, France, and the UK have contributed the most divestures since 2016, according to Dealogic data.
Most recently, tech-focused MNCs have been exposed to potential regulatory risk in data privacy arising from national security concerns. As the US and Chinese economies and technology ecosystems edge towards a decoupling, and hampered by disrupted supply chains, sustaining profitable growth for MNCs in China appears ever more challenging.
Open for business
Despite regulatory uncertainty, China’s growing middle class and sheer size remain a magnet for foreign businesses. Foreign direct investment into the country climbed 14.9% year-on-yearto CNY 1.15trn (USD 180.75bn) in 2021, according to China’s ministry of commerce.
While international business watches the sweeping regulatory clampdown unfold, intensifying over the past year in the internet and education sectors in particular, the Chinese government continues to promote the world’s second-largest economy as opening further to overseas capital.
Business-friendly policies may not be for all, but many are targeted at foreign enterprises in those manufacturing sectors aligned with country’s national strategy of retaining manufacturing prowess.
The 2021 National Negative List, issued by China’s National Development and Reform Commission, which comes into effect this year, further liberalises restrictions on foreign ownership in automotive manufacturing, radio and television equipment manufacturing, thus levelling the playing field for both foreign and domestic investors in these sectors.
Time to go
Despite the government’s charm offensive, some MNCs have decided it is time to step back from China. As reported exclusively by Mergermarket, Temasek, a global investment company, is seeking to exit its holding in Columbia China, the China-focused healthcare arm of US-based Columbia Pacific Management, via a trade sale. Dutch dairy co-operative FrieslandCampina is also reported to be kicking off the sale of its Friso infant nutrition brand, driven by concerns over revenue, particularly after the closure of the border between Hong Kong and mainland China.
French automaker Renault [EPA:RNO] confirmed in December that it is restructuring its China joint venture with state-sponsored peer, Brilliance China Automotive Holdings (Brilliance Auto), while TTM Technologies [NASDAQ:TTMI], a California, US-based printed circuit board maker, is selling its entire China operation, as reported by Mergermarket.
Did you enjoy this article?
Add the following topics to your interests and we'll recommend articles based on these interests.