European companies are expected to hunt for assets in China, mainly in the insurance, healthcare and automotive sectors, after the world's second-largest economy and the European Union reached an investment deal last month, lawyers and bankers say .
The agreement, which has lasted nearly seven years and is committed to further liberalization of the Chinese market, is likely to take another year before it enters into force. It is not clear whether the deal gives more leeway in mergers and acquisitions.
However, bankers believe that China's inbound deal flow, which has remained small for decades compared to its economic size and market potential due to barriers to entry for foreign capital, will pick up over time.
"The comprehensive investment agreement between the EU and China will certainly facilitate foreign direct investment, including mergers and acquisitions, by EU investors in China," said Cherrie Shi, senior advisor at FenXun Partners law firm, Baker McKenzie & # 39; s Joint Operation partner.
The deal would provide EU investors with "more certainty and predictability" for their investment, Shi said.
The total M&A value of EU companies in China was $ 71 billion over the past three decades, much lower than the $ 117 billion recorded by US companies over the same period, Refinitiv data showed.
The agreement agreed on December 30 allows European companies in China to operate in electric cars, telecom cloud services and certain activities related to air and maritime transport.
They may also fully own units in the automotive sector, many financial services, private hospitals, advertising, real estate, and environmental services, such as sewage.
“These are the most important growth areas with huge investments. Businesses in the EU are very curious about some of the action, ”said Alan Wang, partner at Freshfields Bruckhaus Deringer law firm.
China's economic recovery, unlike most major economies crumbling from measures to contain the COVID-19 pandemic, will make its market, especially healthcare and pharmaceuticals, more attractive to EU investors, Wang said .
European companies are already ramping up the auto and financial services ante, which China had opened up prior to the deal. Automakers BMW, Volkswagen and Daimler have moved to take control of their Chinese joint ventures, Reuters reports.
Insurers such as AXA and Allianz have also received full ownership of their Chinese units. Amundi, Europe & # 39; s largest asset manager, started an asset management company in Shanghai last year. More is expected to follow.
By acquiring full ownership of their businesses, it will be easier for the businesses to take over and integrate local colleagues.
“An increasing number of international buyers, mainly from Europe, are lining up to break into China,” said Samson Lo, head of Asia M&A at UBS.
However, lawyers warned that no company will rush investment decisions with the details of the agreement yet to be finalized.
China will ban the forced transfer of technology from foreign companies and state-owned companies from discriminating against foreign investors, but red tape and other issues can still pose challenges.
"The big question really comes down to implementation," said Wang of Freshfields. "In practice, what are the practical local barriers that you may still face as a result of a regulatory process that is difficult to foresee?"
(Editing by Sumeet Chatterjee and Jacqueline Wong)
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