Photo taken on July 14, 2020 shows the Golden Bauhinia Square in south China's Hong Kong, July 14, 2020. Photo: Xinhua

The Hong Kong Special Administrative Region (HKSAR) has become the most popular destination for Chinese mainland enterprises seeking overseas merger and acquisition (M&A) deals in 2021, while the US led in foreign investment deals in the Chinese mainland market, according to a new report released on Thursday. 

The Hurun China Cross-Border M&A Report 2021 showed that while the overall number of overseas M&A deals made by Chinese mainland firms dropped significantly amid the COVID-19 pandemic, there are also positive trends and prospects for growth in overseas M&A deals going forward.

According to the report, the top 50 overseas M&A deals made by Chinese mainland companies reached 168.2 billion yuan ($26.42 billion), a plunge of 45 percent compared with 2020.

The drop came as the global economy was hit hard by the COVID-19 pandemic and a slowdown in economic development, as well as other factors such as anti-globalization sentiment, the report said. 

The HKSAR was the most popular market among mainland companies for cross-boundary M&A deals, accounting for 11 of the top 50 deals made in 2021, followed by the US with seven deals.

The safe business environment in the HKSAR for mainland businesses, which face increasing risks of being targeted or cracked down on in the US, was the chief reason behind the city's growing popularity, a financial market analyst surnamed Dong told the Global Times on Thursday.

Meanwhile, among the top 50 overseas investment deals in the Chinese mainland in 2021, the US contributed the most, 19 deals, followed by the HKSAR with 11 deals, according to the report, adding that financial services became the most favored sector for overseas investment.

While there is great potential for growth in Chinese mainland firms' overseas M&A deals, uncertainties also remain, analysts said. 

"The signing of the China-EU investment agreement and the subsequent implementation should have a positive impact on promoting cross-border M&A deals between China and Europe, while the Regional Comprehensive Economic Partnership is also a positive factor that will boost cross-border M&A deals by Chinese enterprises," Feng Lin, CEO of DealGlobe, a Shanghai-based consulting firm, said in the report. 

However, Feng said that in an environment where the position of the new US administration is unclear, how the US would respond to capital from the Chinese market will still be a test for Chinese enterprises in 2022. 

Dong said that both the US and Chinese markets have demand for M&A deals to further expand businesses and bilateral cooperation in the supply chain and technology, adding that the US capital market needs investment from China, especially for its venture capital.

  

Feng predicted that with the improvement of the pandemic and the increase of vaccination rates across the world, the number of overseas M&A deals made by Chinese enterprises will rebound significantly.