China’s overseas asset buyers have reined in spending since 2016 when they rang up the world’s biggest shopping bill. Outbound deals topped inward transactions five to one with 924 acquisitions worth US$203.9 billion that year.

By last year, outbound purchases had dropped 15.1 per cent from 2019 to 443 deals worth US$37.1 billion, while inbound deals rose 4.4 per cent to 580 purchases valued at US$44.8 billion.

Much of the merger activity involving Chinese firms in 2020 was driven by domestic consolidation, rather than cross-border deals, according to Refinitiv. Domestic deals rose 38.8 per cent to US$478.5 billion last year, Refinitiv said.

To be sure, the slowdown in China’s outbound deals is part of a global trend. Cross-border deals slipped 13 per cent worldwide last year, the lowest level of activity in six years as the coronavirus pandemic kept bankers and clients from meeting face-to-face, stymied due diligence visits and forced acquirers to strike a more cautious note as economies slowed from New York to Hong Kong.

“A year of relative stasis has created huge pent-up demand for acquisitions (and some significant war chests among companies in many industries), and we expect this to lead to more hostile bids by companies looking to emerge from the crisis as consolidators,” law firm Freshfields Bruckhaus Deringer said in its latest M&A outlook.

The value of US deals by Chinese firms only accounted for about 22 per cent of outbound activity in 2020, down from 30 per cent of transactions four years ago, according to Refinitiv.

In addition to the US, governments from Brussels to Tokyo have enacted new rules in the past 18 months to more closely scrutinise foreign investments – much of it targeting sectors favoured by Beijing.

That is not to say Chinese deals into the US have dried up entirely.

In September, a US judge approved the sale of bankrupt vitamins and supplements retailer GNC Holdings to state-owned Harbin Pharmaceutical Group for about US$760 million. The deal closed in October, but not before US Republican senator Marco Rubio, a China hawk, asked for a national security review of the transaction.

Other inbound deals could be a further test for how the Biden administration and the Committee on Foreign Investment in the United States (Cfius), which evaluates transactions on national security grounds, will approach deals by Chinese acquirers.

For example, manufacturer Hangzhou GreatStar Industrial agreed to acquire Pennsylvania-headquartered Shop-Vac – a well-known brand of work vacuums – in December for about US$42 million.

Another test could be China’s efforts to combine Sinochem Group and state-owned China National Chemical Corp, or ChemChina.

The Wall Street Journal reported in December that Beijing was looking at ways to structure the deal to avoid triggering a review by Cfius as a result of ChemChina’s blockbuster US$43 billion deal for seed company Syngenta Corp. in 2016.

In March, Chinese gaming company Beijing Kunlun Technology agreed to sell gay dating app Grindr for US$608.5 million, nearly a year after Cfius retroactively ordered it to divest the company. Beijing Kunlun Technology took a majority stake in the company in 2016.

Bagrin Angelov, head of China cross-border M&A at China International Capital Corporation (CICC), said the regulatory environment remains challenging, but Chinese firms are being “rational” and continue to pursue transactions for American assets.

“What people are doing [is] diversifying away from the US, particularly in sensitive sectors and in particular when it comes to transactions being executed by SOE companies,” he said. “You’ll see more SOE deals going into so-called China-friendly jurisdictions.”

“With strains likely to continue under the Biden administration, strategic partnership with the EU is critical for China amid the uncertain international environment,” according to a report written by Yifan Hu, UBS’s chief China economist and UBS analyst Kathy Li.

The relatively quick pace of recovery in China from the coronavirus pandemic gave foreign investors more confidence to pursue inbound transactions in 2020, deal makers said.

The uncertainty that has weighed on global trade for the past two years also will be lifted with a change in US administration, which should help growth in the Asia-Pacific region, said Steve Cochrane, chief APAC economist at Moody’s Analytics, a research arm of Moody’s credit rating agency.

“The process will be slow as the new US administration will have to balance many domestic priorities, not the least of which is the still-raging pandemic in the US, and a cautious and multilateral approach to trade negotiations will take time to generate results,” Cochrane said.

“A lot of people are focused on the US-China geopolitical noise and perceived conflict,”, according to Alexander von zur Muehlen, Deutsche Bank’s Asia-Pacific CEO. “What is really happening in real life from a financial industry point of view, you still see China opening their markets a lot.”

“We expect the first half of 2021, as much as one can easily see into the future nowadays, to be quite busy,” said Marcia Ellis, global chair of law firm Morrison & Foerster’s private-equity group. “There is still a huge amount of dry powder allocated to Asia. The interest rates are still very low, and there is a lot of interest in acquiring assets in Asia.”