Deloitte report downplays the impact of capital outflow controls on healthcare

Despite recent controls on capital outflows, Chinese healthcare and life science companies will continue to find ample opportunities for mergers and acquisitions or M&A abroad, according to a report by Deloitte Touche Tohmatsu, one of the “Big Four” global accounting firms.

The recent slowdown in health-related M&A notwithstanding, Chinese overseas investments will accelerate, especially in medical equipment and related services, given the inadequate research and development capabilities at home, expectations of the renminbi’s depreciation and overvalued domestic M&A targets, said the DTT report.

Local enterprises with sufficient capital will seek to go out for investment opportunities, and to explore overseas markets, acquire advanced technologies, enrich their product lines, extend their industry chain and enhance their brand image, it said.

Simon Li, a counselor at Anjie Law, said controls on capital outflows are meant to rein in irrational or speculative overseas investments in real estate, hotels, entertainment and sports clubs. So, such policies won’t affect the healthcare industry much.

The Chinese government is keen on the development of the healthcare industry

value of outbound M&A by Chinese pharmaceutical companies in 2016

The Belt and Road Initiative encourages Chinese companies to go global, invest abroad and cooperate with foreign companies, the DTT report said.

But, since the second half of last year, the government tightened scrutiny of outbound investment proposals. Such proposals were subjected to heightened regulatory scrunity in foreign countries as well.

For instance, on July 31, news agencies such as Bloomberg and Reuters reported that India may reject Shanghai Fosun Pharmaceutical Group Co’s proposed $1.3 billion takeover of an Indian drugmaker, Hyderabadbased Gland Pharma Ltd.