Bain & Co: Nation to retain its charm for investors

China will remain an attractive market for growth and investment amid the changing regulatory environment and growth opportunities for industries, especially in mergers and acquisitions that are still awaiting multinationals and domestic companies, the latest industry report said.

A report by consultancy firm Bain & Co said China's regulations may have tightened in some sectors and there are stricter measures to protect sensitive data and national security, but this does not diminish the importance of this market for strategic buyers.

As the country moves into a new era of regulations, China will remain an attractive market for growth and investment. For many industries, it's still the world's hottest market, the report said.

"Even with a stricter regulatory environment, opportunities can be found for dealmakers hoping to grow along with China. In some industries, regulations favor M&A and joint ventures," said Hao Zhou, partner at Bain & Co.

Zhou said this could be seen in deals like China International Marine Containers' $1 billion acquisition of Maersk Container Industry, a deal that confirms CIMC as the world's largest container producer, as well as China Resources Capital's purchase of Viridor, a leading British waste disposal company.

"For both multinationals and domestic companies, however, successful deals will take more time and rigorous planning. They are expected to plan for longer approval times, and be prepared for extensive information disclosure requirements to address antitrust and data security issues," he said.

A string of Chinese internet heavyweights－including Alibaba Group Holding, Tencent Holdings, Meituan, JD and Suning.com－were fined for monopolistic behavior in 2021.Since 2020, the State Administration for Market Regulation said it has imposed penalties totaling 60 million yuan ($9.41 million) in 88 cases related to the concentration of control by operators.

"Common prosperity is now a top priority for the government, which is aiming to narrow the country's wealth gap. Also, China has been a leader on the frontier of digital innovation and the government has recently taken steps to protect sensitive data," Zhou said, adding this requires dealmakers to adapt accordingly.

"New opportunities are emerging for investments in sectors such as fast-moving consumer goods. Strategic investors in these sectors should double down and more aggressively allocate resources to identify and invest in attractive targets," he added.

Another trend the report has noted is that in the changing regulatory environment, more multinationals are revisiting the joint venture option, especially with domestic companies that have advanced technology or critical capabilities and resources.

For example, AstraZeneca established a joint venture with Chinese Future Industry Investment Fund, a biopharma-focused private equity fund partly owned by the China State Development & Investment Corp.

Dizal Pharmaceutical, the JV company, can make use of all the scientific and technical capabilities of AstraZeneca's Innovation Center China, while FIIF contributes funding and expertise toward establishing strategic partnerships in China.