Mainland China

The M&A state of play

Mainland China's cross-border investment landscape in the first half of 2026 presents a picture of stabilisation and rebound on the inbound side and a resurgence on the outbound front. After three consecutive years of declining inbound foreign direct investment (FDI), early signs of recovery have emerged and the pace of contraction has narrowed significantly. FDI into the country showed further signs of stabilization in H1 2026, with inflows posting year-on-year growth in both May 2026 (+5.9%) and June 2026 (+15.1%), reaching US$59.2 billion for H1 2026.

Capital from certain jurisdictions/regions (such as the Middle East) has also become a more visible source of inbound investment into Mainland China, reflecting a broader geopolitical realignment as Gulf sovereign investors diversify their exposure beyond traditional Western markets. In March 2026, Savvy Games Group, a subsidiary of Saudi Arabia’s Public Investment Fund, agreed to acquire Shanghai Moonton Technology from ByteDance for approximately US$6 billion. Earlier in 2025, Petrochemical Industries Company K.S.C. (a major subsidiary of Kuwait Petroleum Corporation) acquired a strategic stake in state-owned Wanhua Chemical (Yantai) Petrochemical Co., Ltd. in a deal valued at over US$638 million, signaling that this Middle East-to-China investment trend was already underway and continued into 2026 (Ashurst Perkins Coie advised PIC on this transaction).

Chinese outbound investments remained robust in H1 2026 and are likely to continue growing in H2 2026, though moderated by the complex geopolitical landscape and increasing foreign investment screening in host jurisdictions. Multiple Chinese investments were blocked or challenged on national security grounds in H1 2026, including Mingyang's US$ 1.8 billion wind facility in the UK, JAC Capital's divestment of FTDI Chip's stake (UK), China's Sanan Optoelectronics proposed acquisition of Lumileds in the US, and the suspension of Chile-China Express submarine cable project. By contrast, other jurisdictions have moved to ease restrictions on Chinese investment, including India relaxing its screening regime in March 2026 to approve Geely's hybrid engine manufacturing site.

Turning to 2027, structural forces rather than a cyclical bounce are likely to set the direction of China’s FDI. Foreign capital should continue to favour services sectors — particularly technology, healthcare and consumer platforms — helped by continued regulatory opening and the scale of the domestic market. In manufacturing, investment is narrowing towards higher-value niches such as advanced equipment, medical technology and green industry, with foreign manufacturers appearing to favour incremental expansion, localised R&D and tighter integration with domestic supply chains over large greenfield builds.

Both dimensions remain deeply shaped by geopolitical fragmentation, intensifying trade barriers, and deliberate policy recalibration by Beijing and host-country governments alike.

Regulatory and geopolitical environment

Policy direction is generally supportive. The Action Plan for Stabilizing and Optimizing Utilization of Foreign Investment, published jointly by the Ministry of Commerce of the PRC and National Development and Reform Commission in July 2026, continues a sequence of liberalising measures aimed at restoring foreign investor confidence, expanding pilot openings in services and improving national treatment for foreign-invested enterprises. Market participants have broadly welcomed the Action Plan as a signal of Beijing’s commitment to arresting the multi-year decline in foreign investment, though many remain cautious about its practical impact. That openness nonetheless operates alongside a negative list and a national security review regime that remain materially restrictive in practice in particular in the artificial intelligence sector. One example is Meta’s US$2 billion acquisition of Manus AI, announced in December 2025 and subsequently ordered to be unwound by PRC regulators in April 2026 on a national security basis, with Manus confirming in August 2026 that it would return as an independent company.

Technology export controls, data-transfer restrictions and supply-chain decoupling pressures increasingly shape structure at the outset, as illustrated by the new Provisions on Outbound Investment published by the State Council in June 2026. Acquirers are carving out sensitive data assets, localising data and R&D functions, accepting minority or joint-control positions in place of outright control, and negotiating longer outside dates, regulatory efforts covenants and reverse break arrangements calibrated to a dual-review timetable.

Contractual cooperation becoming increasingly popular

Contractual cooperation arrangements, such as joint technology development and IP licensing, have become an increasingly popular alternative to equity acquisitions, allowing both sides to share profits, risks and capabilities without navigating the full scrutiny of a change-of-control transaction.

Chinese companies have featured on both sides of these arrangements: as licensor, NIO is providing battery technology and EV architecture licensing to British supercar maker McLaren Automotive as part of a strategic alignment, and Innovent Biologics granted Eli Lilly worldwide development and commercialisation rights (outside Greater China) to its biopharmaceutical programmes for up to US$8.9 billion; as licensee, Jiangsu Hengrui Pharmaceuticals and Bristol-Myers Squibb entered a reciprocal global collaboration spanning thirteen early-stage oncology, hematology and immunology programmes. These deals illustrate how licensing and collaboration structures are enabling continued cross-border technology flow even as outright acquisitions face more complex approval pathways.

2026's market-defining and notable transactions:

Inbound M&A deals (announced in H1 2026)

Source: Mergermarket

Outbound M&A deals (announced in H1 2026)

Source: Mergermarket

Other Contractual Cooperation (mainly joint development and IP licensing arrangement)

Source: Mergermarket

* Subject to the below, all data is sourced from Mergermarket. This document also includes data derived from data provided under license by ION. ION retains and reserves all rights in such data.

** The FDI data in this article refers to Actual Utilised FDI as published by the Ministry of Commerce of the PRC