David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

(Updated )

There was a point last year when China looked to be the future of mergers and acquisitions.

In the first quarter of 2016, there were $188 billion of deals underway involving Chinese acquirers, including such mega-transactions as China National Chemical Corp.'s $43 billion bid for Syngenta AG, Qingdao Haier Co.'s $5.4 billion purchase of General Electric Co.'s appliances business, and HNA Group Co.'s $6 billion takeover of Ingram Micro Inc.

A Bigger Slice of the Pie
At its high point early in 2016, China came close to being the biggest source of M&A cash after the U.S.
Source: Bloomberg
Note: Shows value of deals with acquirers in respective countries as a percentage of total deal values.

That total was well ahead of the $130 billion coming out of Western Europe, and only narrowly behind the $200 billion from all other countries barring the U.S., making China the second-biggest M&A market globally.

Suddenly, it's all coming juddering to a halt.

In June, Beijing's banking regulator ordered extra scrutiny of loans made to acquisitive outbound dealmakers including Dalian Wanda Group Co., Anbang Insurance Group Co., Fosun International Ltd., and HNA.

Fosun's co-founder Guo Guangchang caught the mood over the weekend with a letter posted on his company's WeChat account that reads like a self-criticism statement at the end of a Cultural Revolution struggle session.

"The recent scrutiny on overseas investments and financial irregularities are necessary, timely and can eradicate a lot of irrational investments," he wrote. "I believe the government’s attitude toward truthful, compliant overseas investments has never changed." In other words, we have always been at war with Eastasia.

Now comes a further hammer-blow. The country's foreign-exchange regulator is looking at whether the four companies, plus Rossoneri Sport Investment Lux, the Chinese owner of the AC Milan soccer team, improperly pledged domestic assets as security for loans from overseas branches of Chinese banks, people familiar with the matter told Bloomberg News on Tuesday.

The State Administration of Foreign Exchange said in a later statement that no specific companies are being targeted and that related reports were inaccurate, without identifying any media outlets. It also said it would work with other regulators to make sure no abuses are taking place.

Waiting Room
The number of completed outbound Chinese deals is dwindling, while the number awaiting approval has surged
Source: Bloomberg

For western bankers, this whole process has been fraught with frustration, as well as temptation.

When China's takeover giants were sallying forth, checkbooks in hand, many of them saw little use for financial advisers. Going on the sort of spending spree they enjoyed doesn't require subsidizing a banker's entertainment budget: All you need is your magic pot of money and an eye on the financial press to see which assets were undergoing "strategic review."

Of Anbang's $36 billion-odd in potential, withdrawn or completed deals, western banks advised on less than $2 billion, according to data compiled by Bloomberg -- the takeovers of Dutch insurers Vivat NV and Delta Lloyd NV and those involving Korea's Tongyang Life Insurance Co. and Allianz Life Insurance Korea.

When HNA bought Ingram Micro, the advisers were domestic investment banks China International Capital Corp. and GF Securities Co. plus Bravia Capital, a boutique firm whose founder Bharat Bhise has a long-standing and oddly close relationship with HNA itself.

A likely outcome of the current regulatory crackdown is a fire sale of the assets that have been assembled over the past two years. That's instinctively stronger territory for M&A advisers: If you're trying to get a good price for a company for which you probably overpaid in the first place, you really want some professionals who can find the widest possible group of bidders and then run a discreet blind auction.

Unfortunately, western bankers are stymied again. The murky know-your-customer issues around many of the Chinese raiders have become so pressing that banks are increasingly unwilling to take the reputational (and potentially financial) risks of working with them.

Wise Counsel
Some of the biggest advisers to acquisitive Chinese companies are pulling back
Source: Bloomberg
Note: Shows banks by value of outbound Chinese deals advised on and announced or reported since Dec. 31, 2014. There may be some double-counting where multiple banks worked on the same deal.

Morgan Stanley -- the No. 1 adviser on outbound Chinese M&A deals since the start of 2015, according to Bloomberg-compiled data -- has steered clear of working with HNA because of a lack of clarity around sources of funds and ownership, people familiar with the matter told Bloomberg last month. Citigroup Inc. and Bank of America Corp.'s Merrill Lynch unit -- also in the top 10 -- have similar issues.

Having missed two banquets in a row, what scraps will be left for Hong Kong's bevy of western bankers when the dust settles?

It's hard to say. You only have to look across the water to Macau to see that Beijing's crackdowns often have a short shelf-life, so it's quite possible the dealmaking party will kick off again once the Communist Party's five-yearly Congress is out of the way later this year.

If that doesn't happen, though, those MDs and their expense accounts will be in uncomfortable territory. Investment bankers only eat what they kill. If Beijing decides its companies need to be fenced in rather than roaming freely around the world, a certain breed of bankers could start getting hungry very fast.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Updates with SAFE comments in ninth paragraph.)

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Katrina Nicholas at