Skyscrapers are silhouetted at sunrise in this photo taken from the Bund in east China's Shanghai, Sept. 13, 2020. (Xinhua/Zhang Jiansong)

Value and volume of China's M&A deal increased in 2020 against the headwinds of COVID-19 disruptions driven by strong investment support from the government and state-owned enterprises (SOEs), an industry report showed Wednesday.

China's M&A increased by 30 percent to $733.8 billion in 2020, a record high since 2016. Deal volumes rose by 11 percent, with a significant increase in private equity (PE) M&A offset by a decrease in cross-border deals, according to the latest report released by global accounting and advisory giant PwC.

"Deal values held up after a sharp lockdown dip in February, bouncing back strongly over the next few months and significantly surpassing the previous year in the second half of 2020," said Roger Liu, PwC Mainland China and Hong Kong Private Equity Leader.

The increase in deal values was driven by strong SOE participation in both domestic strategic and financial-buyer deals, mitigated by a steep decline in cross-border M&A, Liu said.

There were 93 mega-deals (value surpassing $1 billion) in 2020, compared to 80 in 2019, reflecting an acceleration of the SOE reform process and government support in response to the economic turbulence. For private equity, their interests are concentrated in consumer, high tech, and advanced industrials. 

China outbound M&A was hit by the COVID-19 as well as political factors, which together made large-sized cross-border deals very challenging, especially into developed markets such as the US and Europe. There were only eight outbound mega-deals in total last year, according to the report.

Cross-border deal values were $42 billion, the lowest since 2010, and volumes were 403, down by 40 percent, the lowest since 2015. 

Private firms remained the most active overseas buyers in term of volume, while SOEs steered their attention back to domestic market. The advanced technology sector attracted most money from Chinese buyers, but almost all sectors have been hit by the pandemic.

Calculated in terms of transaction volume and transaction value, China accounts for about 15 percent of the global M&A market and plays an increasingly important role in the global market.

"China M&A is likely to continue to have a domestic theme in 2021, supported by SOE reform and the 'dual circulation' and 'industrial upgrade' programs," said Liu.

"We expect some increase in M&A volumes overall in 2021, largely driven by domestic and PE activities, although whether the dollar value of M&A increases year-on-year will depend upon the extent of continued state involvement. Overall levels of outbound M&A are likely to increase from the low of 2020, albeit this may take some time to play through so we do not see 2019 levels being surpassed," Liu added.