China M&A 2022 review and 2023 outlook

February 2023

China M&A fell to its lowest level since 2014 at US$486bn, down 20% compared to 2021. The decline would have been larger but for some large transactions to reform state-owned enterprises (SOEs), according to PwC’s M&A 2022 Review and 2023 Outlook.

We expect announced deals to continue to decline in the first half of 2023, due to the exceptionally soft conditions for deals processes last year. However, recent government measures to stimulate investment, along with the removal of Covid-19 restrictions, will have a positive influence on M&A. We believe investor confidence will gradually recover as public market valuations improve.

China M&A 2022 review and 2023 outlook

Looking forward, PwC’s M&A Review and Outlook sees some positive signs for 2023. These include: the release of pent-up demand with the removal of Covid-19 restrictions; measures from China’s leadership to address the real estate crisis; relaxation of curbs on the internet economy; and a re-prioritisation of economic growth more generally. Ongoing record levels of ‘dry powder’ and pressure to deploy this capital should also lead to more active IPOM&A markets in 2023. The economic dislocations associated with Covid-19 and geopolitical trends will also give rise to transactional and transformational activity – including related to distressed situations.

We expect to see some improvement as China’s post-Covid reopening starts to take effect, but it will be rather cautious and gradual, with a few stops and starts due to the various uncertainties in play. As a result, we think that the M&A market in China will become even more domestically orientated, at least in the short term. We also expect to see increased demand for outbound investment, especially into the Asia-Pacific region. We forecast full-year 2023 numbers to be close to last year’s. Activity is likely to be weaker in the first half, but stronger in the second.