China inbound deal volumes have declined in recent years, driven by a combination of geopolitical tensions and the country’s economic challenges (particularly the collapse of its real estate sector, which hit consumer confidence hard).
Western private capital investment fell as many of the biggest international firms reduced their exposure to the market. Strong returns from U.S. assets in particular, including private credit, made persuading investment committees to allocate capital to Chinese opportunities a difficult task.
However, during H2 2025 there were signs that sentiment was turning. Chinese real estate appears to have nearly hit the bottom, and while asset values are not yet rising the market has gradually stabilized.
At the same time equity valuations in China and Hong Kong are robust, while there are hopes that extensive layoffs in a range of industries will put Chinese businesses on a sounder footing for expansion. These factors, alongside central government policies to boost domestic consumption and wages, have sparked cautious optimism for faster economic growth in 2026 and beyond.
The more positive outlook, combined with lower valuations compared to similar companies in other developed markets, is prompting private capital investors to look again at China opportunities, including in the venture capital and high growth space, which had not been a major feature of the prior inbound market.
Alongside this there is significant interest in special situations/capital solutions deals from many of the world’s largest funds, who are keen to source credit opportunities that sit between equity and debt (we explored how some of these deals are structured in the last edition of M&A Insights).
Multinational corporations (MNCs) are also reassessing their China ambitions having moved past the tariff-induced paralysis that defined the first three quarters of 2025, with some players moving decisively to implement new strategies, including exits.
Here they are taking advantage of strong interest from domestic and regional asset managers in Chinese assets in certain sectors that may now look undervalued, such as consumer. In recent months both Starbucks and Burger King have sold controlling stakes in their Chinese operations to local private capital providers as a way to access investment and market know-how for expansion.
One notable feature of these deals, at least in less sensitive sectors, is an increased participation by large Middle Eastern sovereign wealth investors. These funds are less constrained by geopolitical concerns and more willing (or able) to take a macro-fundamental view on the value of Chinese assets. They are eager to increase their exposure to China as they rebalance their portfolios, partly as a hedge against U.S. policy volatility, pursuing co-investment opportunities with local fund managers in control deals involving PRC businesses.
Another sector that is likely to see increased activity is financial services, with banks, investment funds, and insurers all exploring deals for Chinese financial institutions following central government reforms that open the sector to foreign capital. China’s citizens remain underserved with sophisticated investment products and are subject to cross-border capital controls, which is one of the reasons why its real estate market was so heavily subscribed.
Greater China: increased levels of outbound M&A into ASEAN, India, and Europe
The central government’s “Made in China 2025” strategy has created a cohort of technologically advanced businesses in sectors from electric vehicles to batteries, solar photovoltaics, AI, and pharmaceuticals. However, China’s managed economy approach also creates overcapacity in some sectors that puts pressure on margins.
These companies are increasingly looking to use their efficient domestic platforms to expand internationally, with a particular focus on investments into ASEAN and other countries involved in the Belt and Road Initiative (BRI). Chinese innovators are restructuring their companies into offshore holding entities to raise foreign capital to fund offshore bolt-on acquisitions and joint ventures that can support higher international sales of high-tech products, with components produced in China and finished goods assembled overseas for export. Consumer companies are also exploring JVs in ASEAN and beyond to boost their addressable markets.
India and Europe meanwhile are attractive destinations for outbound investment, although geopolitical tensions continue to challenge cross-border relationships in strategic industries.
In October, the Dutch government invoked emergency powers to take over Netherlands-based chipmaker Nexperia, a key supplier to the auto industry, following concerns that its Chinese owner Wingtech was moving important technology out of Europe.
The Chinese government responded by imposing export restrictions on Nexperia’s Chinese plant, which is responsible for around 50% of its production. In November, the Netherlands announced it had suspended the seizure; the dispute, which at the time of writing was yet to be resolved, caused a major headache for Europe’s automotive sector.
With that said, foreign governments are increasingly open to Chinese investment in sectors such as green energy, where China’s intellectual property is highly prized. Outbound deals are generally structured as joint ventures, requiring foreign businesses to carefully navigate China’s technology export controls to ensure they can benefit from their partners’ innovations.
In 2025, the Central Committee of the Chinese Communist Party adopted recommendations for the country’s 15th five-year plan, which will be reviewed and approved in March 2026. They include the Guiding Opinions on Further Improving the Comprehensive Overseas Service System, which signals more extensive policy support for domestic businesses to expand internationally.
As well as a source of inbound investment the Middle East has emerged as another active destination for Chinese investors, especially in AI and the energy transition. Middle Eastern governments are seeking to diversify their economies away from oil and gas and balance their reliance on U.S. technology.
Hong Kong equity markets are the most active in the world
Hong Kong’s equity markets are on a strong run, with more capital raised in 2025 than even the NASDAQ and the New York Stock Exchange. Chinese issuers dominate, with domestic investors leveraging regulatory pathways like Stock Connect (which links the Hong Kong exchange with those in Shenzhen and Shanghai) to access dollar-denominated assets, one of the few avenues available to sidestep China’s capital controls.
Foreign capital flows into Hong Kong are on the rise with Chinese listed corporates keenly priced compared to U.S. equivalents on an EBITDA multiple basis. We expect this dynamic to drive more private equity exits in the months to come.
Regulatory reforms underpin domestic Chinese M&A
Mainland Chinese M&A had reached USD335bn by December 1 (47% higher than full year 2024), underpinned by a suite of regulatory measures introduced in late 2024 to support strategic dealmaking and curtail speculative investments.
The reforms included the State Council’s “National Nine” guidelines, which were introduced to strengthen supervision and promote the development of China’s capital markets. Among the guidelines were calls for listed businesses to “focus on their main business and comprehensively use M&A and restructuring … to improve development,” and encouragement for market leaders to pursue consolidation deals, particularly within their supply chains.
With domestic dealmaking in China largely driven by public companies under the supervision of the China Securities Regulatory Commission (CSRC), the CSRC’s “M&A Six,” which followed the National Nine, were equally significant.
The measures are designed, among other things, to channel investment into emerging technologies, promote cross-sector M&A by high-quality listed companies, and simplify deal approval processes for certain transactions.
The overall aim of these and other reforms is to enhance competitiveness and innovation among Chinese SOEs, create national champions that can be internationally competitive, and reduce China’s reliance on foreign technologies.
State influence visible in big-ticket deals
The influence of state policy is visible in a series of recent big-ticket transactions, including AI chipmaker Hygon’s USD16bn mega-merger with supercomputer manufacturer Sugon and the creation of the world’s largest shipmaker via the combination of China State Shipbuilding Corporation and China Shipbuilding Industry Company.
During the past year, major corporate restructurings have also been announced in the automotive sector, while the Beijing government continues to inject funds into state-owned banks (alongside private placements) to ensure they can further support domestic businesses. At the same time, the government has launched significant monetary and fiscal stimulus packages, which include measures to boost share buybacks that have driven Chinese equities higher.
China’s biotech sector continues to be a nexus of dealmaking, with companies pursing bolt-on acquisitions, strategic mergers and cross-border transactions. Later-stage biotechs with products in advanced clinical trials or near-commercial assets are seeking exits through sales to foreign buyers or IPOs in Hong Kong as they look for capital to commercialize their therapies. One notable model we are seeing to access foreign investment involves the creation of a NewCo outside China into which pipeline assets are licensed.
Japan: inbound investment reaches 18-year high
Deal activity in year to December 1 was more than double 2024's total
