China’s M&A market staged one of its strongest recoveries in recent memory last year, with deal activity hitting its highest levels since 2021. This new momentum is being powered by a wave of capital markets reforms and pro-dealmaking policies that caught observers outside of China off guard.
The macro backdrop has been broadly supportive. GDP growth came in at 5 percent in the first quarter of 2026, up from 4.5 percent in the closing quarter of 2025 and buoyed by strong export growth and resilient industrial production, despite disruptions stemming from the US-Iran conflict. A diplomatic reset between Washington and Beijing, punctuated by President Donald Trump’s recent visit, has also helped thaw relations following recent tariff disputes. This could remove one of the biggest potential overhang risks for cross-border dealmakers.
However, the economic picture is not uniformly bright. Retail sales grew just 0.2 percent in April, undershooting forecasts by a wide margin, while industrial production growth rates declined to their lowest in three years. China’s property market likewise remains in a five-year downturn, with investment still falling.
M&A rebounds
Despite the mixed economic signals—and a recognition in the new Five-Year Plan that GDP growth will moderate between 4.5 and 5 percent annually through 2030—China’s M&A market is firmly in recovery mode. Deals worth US$560.4 billion were struck in 2025, up 50 percent from US$371.7 billion the previous year, and the highest total since the 2021 regulatory restrictions in technology, education and real estate slowed dealmaking significantly. Deal count rose in lockstep, climbing from 3,396 in 2024 to 3,793 last year.
PE investors joined the rebound, though not yet at full strength. The 781 PE deals completed in 2025 totaled US$102.5 billion, representing the highest totals in four years but remaining well below the peaks of 2021 (US$185.4 billion across 1,622 deals) and 2017 (US$192.9 billion across 1,328 deals). The gap suggests PE sponsors are re-engaging selectively, waiting for valuation clarity before deploying at scale.
Top deals in 2026
The early read of M&A in 2026 is more nuanced. First-quarter deal volume held steady at 844 transactions, roughly in line with the same period in 2025. Total year-on-year deal value, however, fell sharply—down 59 percent, to US$88.1 billion—largely because Q1 2025 featured several outsized megadeals that have yet to be matched. At the time of writing (June 5), a further 641 deals worth a combined US$46.9 billion had been announced.
The sector mix in 2026 also tells a different story from 2025. Where financial services and industrials led deal value in 2025, M&A in the first quarter of this year has pivoted sharply toward life sciences and technology, media and telecommunications (TMT).
The shift reflects both China’s strategic priorities and the growing appetite of international buyers for exposure to the country’s biotech and AI ecosystems. In 2026 so far (to June 5), TMT has contributed US$38.8 billion in deals, followed by the pharma, medical & biotech sector, which has produced US$24 billion in transactions. Taken together, these industries account for 45 percent of all Chinese M&A deal value logged to date this year.
The year’s largest transaction so far illustrates the trend. US pharmaceutical company Eli Lilly partnered with Innovent Biologics in a deal worth US$8.9 billion that includes a licensing agreement to develop and commercialize new immunology and oncology treatments worldwide.
The second largest deal was also an inbound investment, this time from Saudi Arabia. The US$6 billion deal saw ByteDance sell its mobile gaming studio Shanghai Moonton Technology to Riyadh-based Savvy Games Group, owned by Saudi Arabia’s Public Investment Fund.
Further activity in the technology and software space included search engine operator Baidu’s US$5 billion share repurchase program announced in February and state-backed AI foundation model business StepFun’s US$2.5 billion pre-IPO funding round, which is reported to include several industrial investors, including Huaqin Technology, Longcheer Technology, OmniVision and ZTE.
Deal drivers
China’s dealmaking revival is the product of a decade-long industrial strategy that is now entering its most consequential phase. The Made in China 2025 program, launched in 2015 to accelerate the country’s shift from low-cost manufacturing to advanced technology, is bearing fruit across AI, robotics, renewable energy and life sciences. The 2026 deal pipeline reflects this directly.
Beijing has reinforced this strategy with a number of M&A-friendly reforms. The National Nine guidelines, for example, aim to strengthen China’s capital markets, including by consolidating fragmented industries through M&A. The companion M&A Six Measures go further, streamlining deal processes and actively promoting cross-sector transactions that support innovation and industrial upgrading. Together, they represent the most concerted effort to encourage dealmaking since the 2021 restrictions brought activity to a near-halt.
And, in some sectors at least, China is wooing overseas investors. At a recent meeting with more than 70 global chief executives, China’s Premier Li Qiang made a pitch for foreign investment, framing China as a “harbor of stability” in an era of rising protectionism. For an M&A audience, the message appears clear: Beijing wants cross-border capital back and is willing to compete for it.
It’s a message that appears to be landing. In all of 2025, only two of the top 20 M&A transactions involved a foreign acquirer. By contrast, eight of the top 20 deals so far in 2026 have included overseas bidders, with three from the US.
Global investors have also been flocking to the Hong Kong stock exchange, attracted by market reforms and lower valuations than equivalent US companies: The exchange ranked first globally in 2025 for capital raised through IPO, with listings worth US$34.3 billion. This is improving PE sentiment for China by providing some welcome exit relief in an otherwise challenging market. There were 70 IPO exits last year on the Hong Kong market, and PwC predicts a further 150 listings for 2026.
Inbound M&A challenges
For the many positive signals, China remains one of the most complex M&A environments in the world. Dealmakers, particularly international ones, need to go in with their eyes open.
Geopolitical tensions have eased but not resolved. US-China relations have improved since last year, but trade policies remain fragile. The conflict in Iran poses a separate risk, threatening oil transit routes and global supply chains in ways that could dampen consumption across China’s key export markets.
The regulatory environment presents its own set of hurdles. Despite the recent reforms, foreign buyers still face stringent foreign exchange controls and security reviews that can add months to deal timelines.
Meanwhile, certain sectors remain restricted or prohibited. The Negative List for Foreign Investment Access restricts or prohibits foreign investment in agriculture, mining, telecom, education and transport such as aviation, while imposing stringent security reviews for investment in technology. In a recent, vivid example, Chinese authorities forced Meta to abandon is US$2 billion acquisition of AI app Manus—a deal that had already been completed—demonstrating that certain structures outside of China must still be reviewed through a Chinese regulatory lens.
Outbound M&A
In another key M&A trend, China’s outbound ambitions are accelerating. Chinese outbound M&A in Q1 2026 was the highest first quarter for such deals by value since 2021, at US$17.4 billion. In the first nine weeks of Q2, Chinese bidders announced a further US$14.4 billion in transactions, putting YTD figures well ahead of Chinese outbound activity in all of H1 2025 (US$26.7 billion).
In terms of sector concentration, five of the top 20 outbound transactions announced so far this year came in the TMT sector, although the largest deal was struck in the financial services space. Hong Kong-based Bullish, the institutional-grade digital assets platform, announced its US$4.2 billion acquisition of Equiniti, a leading global shareholder services provider headquartered in the UK.
This was followed by mining company Zijin Gold’s US$4 billion acquisition of Canada’s Allied Gold. The top three deals were rounded out by conglomerate Jardine Matheson’s US$2.4 billion purchase of I-MED Radiology Network, Australia’s largest radiology provider. This marks Jardine Matheson’s first major acquisition since overhauling its M&A strategy to focus increasingly on developed Asian markets.
The State Council's issuance of the Regulation on Outbound Investment on June 1, 2026 is a further indication that the Chinese government is putting in place a broad regulatory framework to oversee Chinese companies' overseas investments on national security grounds, amid growing concerns about capital outflows and the transfer of key technologies.
Outlook
China’s M&A market has turned a corner. The regulatory reforms are real, the deal pipeline is deepening across sectors, and foreign buyers are shifting from cautious optimism to competitive dealmaking in the M&A space. Outbound activity is opening a second front as Chinese companies move to secure supply chains and acquire global brands.
The risks, however, have not disappeared. Regulatory intervention can arrive suddenly, and the geopolitical backdrop remains fragile. However, the combination of policy tailwinds, sector opportunities and a government actively trying to court cross-border M&A and investment is creating a window that has only been ajar since 2021. Dealmakers who move decisively, with local expertise and flexible structuring, will be best positioned to capitalize on this broadening opportunity.