Asia Pacific dealmaking remains resilient despite energy supply vulnerabilities

M&A by value in Asia Pacific during H1 2026 fell by 25% to USD432.9 billion compared to H2 2025, with deal volume over the period also down by 6% to 8,674 transactions. At country level the picture was more nuanced: M&A values in Mainland China and Hong Kong fell significantly but in Japan and Australia they rose despite the wider macro disruption that has characterized the past six months, from the U.S./Iran conflict and energy supply disruption to ongoing tariff volatility. 

China and Hong Kong: Middle Eastern sovereign investors continue to target opportunities

In Mainland China, total deal value fell by around 40% to USD133bn in the first half of 2026 compared to the previous six-month period, with deal volumes also down by 8% (2,985 transactions). Activity in Hong Kong showed a similar decline, with USD10.7bn of deals in the period to June 11, almost 70% lower than in H2 2025.

Inbound investment into Mainland China remains on a similarly downward trajectory, with total inbound M&A by value for the period standing at USD11.4bn, 31% lower than in H2 2025. Several forces lie behind this trend, including the withdrawal of international private capital providers amid a challenging geopolitical environment and the higher risk/return profile of Chinese assets relative to those in other markets, given ongoing difficulties in exiting existing investments outside of the tech and life sciences sectors. International corporates are also assessing their China platforms as geopolitical tensions remain elevated, with many multinationals focusing on diversifying their international supply chains away from the PRC in search of greater resilience and in response to U.S. and EU regulations.  

Middle Eastern investors are a notable exception, particularly the region’s sovereign wealth funds. Their long-term mandates to support the transition of their national economies away from fossil fuels, and lower sensitivity to the optics of investing simultaneously in China and the U.S. as they look to build geopolitically hedged portfolios, set them apart. Allocations to China have risen following government-level engagement between Chinese and Middle Eastern leaders in early 2025.

The Iranian crisis caused a pause in Middle East/China investment but not a structural shift, although a capital constraint may materialize in the months ahead as investment is directed towards rebuilding local infrastructure damaged during the conflict. At the same time, energy trade dynamics bind the Middle East to China over the long term, with China remaining the largest buyer of the region’s oil and gas. 

Domestic private capital firms grow in influence as buyer profile shifts

Against this backdrop the composition of buyers in China has changed. The bigger Chinese financial sponsors (including PAG, Boyu and Hillhouse) are increasingly acting as lead or co-underwriters on China deals and have become active buyers of Chinese assets divested by international private capital providers, alongside long-term domestic investors such as pension funds.

They are also investing cross-border into Southeast Asia, though like their international counterparts they are challenged by the fact that deals here often carry a high tariff of complexity relative to the size of the check, given the legal and regulatory dynamics in certain markets. With that said, tentative recovery signals are also emerging among international sponsors, with players like KKR and CPPIB looking more favorably at Asia than they have in the recent past. 

The rationale for international corporates investing into China is also evolving, with many now deploying capital to tap into domestic innovation rather than purely to access the Chinese consumer market. In automotive and renewable energy, for example, Chinese companies are now more advanced than their Western counterparts. In response, we are seeing global companies pursuing investments and joint ventures with Chinese partners in order to become more competitive globally. Volkswagen’s recent China pivot is one of the clearest examples. 

At the same time, Chinese corporates are expanding internationally at speed, leveraging their ultra-low cost bases (in large part the result of hyper-efficient AI-powered manufacturing processes) and strong IP in batteries, electric vehicles (EVs) and solar photovoltaics. 

With the Chinese market oversupplied in many of these areas, China’s leading players need to sell their products abroad. Even in a more volatile tariff environment, many Chinese companies’ cost advantage is so great that they can continue to manufacture in China for export without becoming uncompetitive. 

However, some are also pursuing acquisitions of manufacturing facilities in Europe and beyond as a hedge against wider geopolitical instability. In some sectors such as automotive we are also seeing outbound investments into distributors alongside joint ventures with consumer finance providers. As an example, Chinese EV makers are pursuing JVs with international banks to provide financing for customers to buy their vehicles in Europe; the Western model of carmakers bundling finance with vehicle sales has no real parallel within China itself. 

Hong Kong’s strengthening equity market underpins these dynamics, offering Chinese corporates a way to access international investment (Hong Kong’s currency is pegged to the U.S. dollar) and navigate domestic capital controls as they internationalize their products. The performance of recent Hong Kong listings also underlies the nascent revaluation of Mainland China as an investment destination for international funds that we outline above, offering as it does a visible exit route for Chinese portfolio assets.

Japan: dealmaking rises despite market uncertainty

Japanese M&A activity in H1 2026 was particularly strong. Total deal value exceeded USD84bn, up 25% on the previous six-months, while volumes during the period were 7% higher than in H2 2025. Inbound M&A reached USD15.1bn across 109 transactions, both broadly consistent with the June to December totals, placing Japan just outside the global top ten most-targeted markets internationally.

Anecdotally, however, sentiment dipped in Q2, driven by the Iran conflict and Japan’s dependence on oil and liquefied natural gas (LNG) shipped through the Strait of Hormuz. Japan is better positioned to weather this disruption than many Asian economies given its significant reserves, although the supply squeeze from the conflict was tangible, with one major snack food manufacturer having to repackage its products due to a lack of printing-grade petrochemicals. However, the energy crisis could reshape policy in ways that may create momentum for deals, particularly if the Japanese government continues with its plan to revive the country’s nuclear power program. 

At the same time, Japan’s low EV adoption deepens its exposure to oil disruption. With petrol and diesel still dominant, few near-term alternatives exist beyond continued sourcing through vulnerable sea lanes. Despite being early movers in EVs, Japanese carmakers have since focused on hybrid technology, in contrast to other global OEMs.

Weak yen provides powerful tailwind for M&A

Global financial sponsors are increasingly establishing an on-the-ground presence in Tokyo, reflecting the quality and pricing of Japanese assets and the country’s sophisticated legal infrastructure. The weak yen is a powerful deal driver, keeping asset valuations attractive for inbound investors and driving Japanese corporates to accelerate disposals of non-core assets originally acquired in dollars or euros to take advantage of favorable exchange rates. Sector consolidation—particularly in chemicals, and construction—is a notable theme, alongside continued tailwinds from the corporate governance reforms we explored in the previous edition of M&A Insights. The potential for further dealmaking in the auto sector is also being closely watched.

Australia: regulatory changes on the horizon set to impact M&A processes 

Australian M&A in the period to June 11 reached USD48.2bn, a slight increase compared to H2 2025’s figure and 57% above the total for the corresponding period last year. Deal volumes by contrast were 35% lower than in H2 2025. Inbound M&A hit USD27.1bn, 20% up on the previous six months.

There was a determination among dealmakers to proceed with transactions despite the instability in the Middle East. Boards have adjusted to the prevailing macro uncertainty and while some processes were paused at the height of the conflict, contrary to some analyst predictions, deal flow was not significantly impacted.  

Critical minerals in focus for investors

Australia’s mining sector is a focus for investors, driven by the intergovernmental frameworks between Australia and the United States and a parallel U.S./Japan arrangement designed to bolster security of supply in relation to critical minerals and rare earths, alongside the prioritization of defense resilience globally. 

While there has been some initial Australian M&A activity because of the Australia/United States critical minerals deal, the full impact of the agreement has been slowed by the Iran conflict. However, the pipeline for future M&A activity is strong given that Australia has 680 resource deposits aligned with the U.S. Critical Minerals List, with 90% of those deposits available for investment and development by U.S. firms.

Given Australia’s position as a strategically important, resource‑rich and geopolitically stable market in the Indo‑Pacific, data centers, infrastructure and defense assets are sought after by domestic and overseas investors, though transactions here have a variety of structural and regulatory nuances that require careful navigation (you can read more on why (and how these issues are being addressed)in our report Resilient returns: Investing in defense).

Government proposes changes to FDI and tax regimes

As far as policy developments are concerned, there are changes to Australia’s foreign direct investment (FDI) screening regime on the horizon. A recent Treasury paper outlines reforms to further streamline and strengthen Australia’s FDI laws, which include proposals to reduce the regulatory burden on low-risk investments and increase certainty for low-risk investors through broader exemption certificate powers, narrowing certain mandatory notification requirements and increasing the validity periods for no objection notifications to 24 months.

It is expected that low-risk investors currently caught by the broad application of tracing rules and Australia’s Foreign Government Investor status will be the primary beneficiaries. For high-risk investments, the reforms proposed are intended to improve the tools available to the country’s Foreign Investment Review Board (FIRB) by expanding approval requirements in sensitive sectors and extending call-in powers to previously approved applications where necessary. The latter would enable the government to call in and review commercial agreements in sensitive and critical sectors that could confer control without ownership, such as offtakes and other contractual lending agreements. The reforms will largely be effected through legislative amendments, although a timeframe has not been specified. Meanwhile, FIRB is proposing a shorter 30-day turnaround for decisions on low-risk investments (to be implemented from January 1, 2027), and will also review ineffective conditions on existing approvals.

Elsewhere, the range of share sales triggering Australian capital gains tax (CGT) for foreign sellers is being extended by widening the definition of real property to include all assets with a “close economic connection” to Australian land or natural resources, which includes energy and infrastructure assets.

A new pre-closing notification requirement for transactions of AUD50 million or more will affect deal timing. Buyers may also need to conduct more extensive due diligence to assess which assets fall into scope of the new rules, rather than relying on assurances from sellers.

With that said, the measures are yet to be enacted and may change in response to feedback.