When China’s new merger oversight board, set up last year, blocked Coca-Cola’s friendly, but politically controversial, takeover of Huiyuan, some commentators saw it as a warning sign for cross-border mergers and acquisitions deals in China. 

While such deals had been on the rise last year, according to Dealogic figures showing there was $98.5 billion in cross-border deals proposed last year, in rejecting the Coke deal the Chinese government seemed to be more interested in protecting the domestic market from foreign intervention than boosting its home-grown brands overseas. 

Newly released Bloomberg figures show M&A activity generally dropped by 44 per cent in the Asia Pacific region for the first quarter of 2009, compared with the same period last year. 

The M&A market in China has come off from where it was 6 months, 9 months, and 12 months ago, Allens Arthur Robinson partner Campbell Davidson, who is based in the firm’s Hong Kong office, told The New Lawyer. 

“I think it would be fair to say, based on what people say in the market here, in Shanghai and Beijing, that foreign direct investment has certainly slowed down,” he said. 

But the Coke deal and its demise can be easily attributed to the global financial crisis generally, the Allens partner said. It was announced in September last year, before Lehmanns and before the market took a “hammering”, Campbell said. “I think if they’d waited three to four weeks they may well have gone forward on slightly different terms … They were paying full price according to a lot of commentators.”

But as well as the global downturn that has inspired a new uncertainty in the broader economy, Campbell said, “even at the bet of times for foreigners to be investing in China it’s seen as higher risk than investing in home markets”. 

Martyn Huckerby, a Mallesons Stephen Jaques M&A partner based in the Shanghai office says the GFC has affected M&A China. “We are seeing the same range of enquiries and the same number of potential deals, but the transactions are taking pace at a slower rate.”

The Mallesons partner said that as share markets fall away, buyers are looking to enter transactions only when they feel they can get a “good deal” in the current market. 

“It’s a way of offsetting the potential risk of undertaking transactions at this time,” Huckerby said. “A number of deals have stalled or are on hold because of that.”

“You have a general conservatism creeping into the market where people are not wanting to undertake a transaction unless they have a sense they are getting in at the bottom of the market,”  he said. 

This insight from the Allens and Mallesons partners comes despite an Allens press release two weeks ago that M&A activity in Australia and out of Greater China are “the bright spots in an otherwise lackluster first quarter of regional deal activity”. 

The firm cited Bloomberg figures showing that outbound investment from China accounts for 70 per cent of all M&A activity in that country.