Overseas M&A’s coast on the China-led Belt & Road Initiative, but hit bumps in rising valuations, stricter regulations

After the euphoria over outbound M&A, or mergers and acquisitions, last year, it’s time to get back to senses this year and stage a recovery next year — that sums up Chinese companies’ current thinking.

Chinese companies never had it so good in M&A as they did last year. They spent $212.5 billion, almost 3.5 times that of 2015, to merge with, or acquire, companies overseas in 920 deals, up 142.1 percent from 2015 , according to accounting firm PricewaterhouseCoopers.

An abundance of capital and cheap debt, pursuit of growth outside a slowing economy and efforts to meet the standards of a more affluent and brand-conscious middle class are still giving momentum to outbound M&A, a report of global law firm Clifford Chance said.

The first quarter of this year extended the record run of 2016, coasting on opportunities presented by the Belt and Road Initiative. Mainland companies announced 142 outbound M&A’s with a combined value of $21.2 billion.

The PwC report said 32 percent of overseas M&A’s by Chinese companies in the first quarter of this year were in Asia, a key region for the Belt and Road Initiative.

One of the prominent M&A deals this year involved leading Chinese automaker Zhejiang Geely Holding Group. Geely picked up a 49.9 percent stake in Malaysian carmaker Proton Holdings Bhd from DRB-Hicom Bhd, a Malaysian conglomerate.

Geely will also buy a 51 percent share in Lotus, a British sports carmaker owned by Proton.

Malaysia is one of the many economies participating in the Belt and Road Initiative. Geely and Lotus are expected to sign a final agreement before the end of July, the company said at May-end.

“With Proton and Lotus joining the Geely Group portfolio of brands, we strengthen our global footprint and develop a beachhead in Southeast Asia,” said Li Donghui, executive vice-president of Geely.

Guan Qingyou, research director of Minsheng Securities, said, “The Belt and Road Initiative will promote China’s merger and acquisition tide” as companies can decrease deal costs and risks with State financial support. Chen Chao, director of transaction services at PwC China, said, “Cross-border deals with strategic significance , especially industrial upgrading and the Belt and Road-related projects, will dominate the overseas merger and acquisition market this year.”

Given the surge in the number of M&A’s, Chinese authorities moved to step up supervision in December.

The National Development and Reform Commission, the Ministry of Commerce, the People’s Bank of China, and the State Administration of Foreign Exchange declared that they would pay closer attention to overseas investments in hotels, sports clubs, film studios and property.

In January, SAFE released a guideline to tighten review procedures for overseas direct investments.

Meanwhile, Chinese corporate buyers are facing stricter regulatory hurdles and security reviews overseas.

There is another twist in the tale. The volume and value of first-quarter deals dropped 39 percent and 77 percent yearon-year, respectively, from record highs, according to the PwC report.

The report attributed the year-on-year slump in firstquarter M&A’s to the slower pace of going abroad by Stateowned enterprises and private companies. The deal value by financial investors in the first quarter even plunged 91 per-