How EVs and US tariffs could drive Chinese deals into Europe

China experienced positive economic growth last year despite significant headwinds such as trade protectionism and weakening consumer demand. The country’s GDP grew by 5 percent over the course of the year, with a booming manufacturing sector and export-driven economy driving growth.

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The first quarter of 2025 witnessed even stronger growth, with the world’s second-largest economy posting GDP of 5.4 percent, well ahead of analysts’ predictions of between 5 and 5.1 percent.

These healthy economic fundamentals put Chinese companies in a strong position when looking for deals overseas.

However, these figures do not include the effect of steep reciprocal tariffs imposed by the US administration.

The tariffs, which were levied in early April, are currently set at 145 percent, with exceptions on certain products such as smartphones and computers. Those tariffs are levied in addition to unilateral Section 301 tariffs already imposed on numerous products from China and can total well over 200 percent.

Given the US’s increasingly protectionist stance and the trade standoff between the world’s two largest economies, Chinese bidders could look to Europe as the next frontier for growth. China was the EU’s second-largest trading partner for goods after the US in 2023. This partnership could grow even stronger this year, given the shift in geopolitical dynamics taking place.

Deal value from East to West surges

M&A value from China into Europe rose sharply in 2024. A total of US$12.6 billion was recorded for the year—an 83 percent increase compared to 2023’s value. Deal volume increased marginally over the same period, from 73 to 74 deals.

The biggest deal of the year saw Bohai Leasing’s Irish subsidiary Avolon acquire Irish aircraft leasing company Castlelake Aviation. Through the acquisition, valued at US$4.5 billion including net debt, the aircraft leasing giant will gain a US$5 billion portfolio of assets, including 118 aircraft. Avolon, AerCap and SMBC Aviation Capital make up a trio of companies currently dominating the aircraft leasing industry.

In the second-largest deal of the year, mobile games developer Miniclip, a subsidiary of Chinese gaming and social media giant Tencent Holdings, acquired Cyprus-based gaming developer Easybrain. The US$1.2 billion deal, expected to close in early 2025, will add puzzle game franchises such as Sudoku.com to Miniclip’s portfolio, enabling the games developer to reach a broader audience.

Europe’s industrials and chemicals sector was the most hotly targeted by Chinese bidders in 2024, with 27 deals announced last year. This trend demonstrates China’s determination to build manufacturing bases in Europe, particularly in the automotive sector.

A notable deal in the industrials space was Volvo’s divestment of Swedish electric vehicle maker Polestar to Chinese automaker Geely. The US$855.6 million purchase highlights China’s growing presence in Europe’s EV scene.

In the first quarter of 2025, deal value rose year on year by 22 percent, to US$1.4 billion on the back on 12 deals, a year-on-year drop of 29 percent. The increase in value and decline in volume is very much in line with the global trend for the first three months of 2025.

The biggest deal of the year so far saw technology multinational Tencent acquire a 25 percent stake in a new subsidiary of French video game giant Ubisoft for US$1.6 billion.

Trends and drivers

The current tension between the US and China could spur Chinese companies to decamp to Europe, despite strict regulations on the continent.

Chinese automakers, in particular, are set to take advantage of Germany’s struggling automotive industry, reportedly seeking out acquisitions of German motor factories slated for closure. According to Reuters, sites under consideration include Volkswagen facilities in Dresden and Osnabrück.

In October, the EU imposed new tariffs of up to 35 percent on Chinese EVs, in addition to an existing 10 percent duty. Acquiring a site in Germany would help Chinese carmakers bypass EU tariffs on imported EVs while gaining a foothold in the European market.

Regulatory challenges

Significant regulatory hurdles remain for Chinese dealmakers if they are to gain a foothold in the European market, despite a clear appetite for deals on both sides. Increasingly interventionist policies from both the EU and the UK are putting cross-border mergers under scrutiny. Supply chain security, foreign direct investment and ESG concerns are increasingly under the spotlight, resulting in a complex landscape for overseas dealmakers to navigate.

The EU’s Foreign Subsidies Regulation, which came into effect in October 2023, places an increased administrative burden on foreign investors in Europe. Failure to notify the European Commission at the correct time could result in hefty fines. Timely planning and preparation will be needed to navigate the increasing amount of red tape surrounding deals.

The regulatory landscape across Europe continues to evolve, with both the geographical and sectoral scope of screening regimes expanding at pace. In January 2024, the EU proposed revisions to the FDI Screening Regulation, including the recommendation that investment screening become mandatory in areas such as critical infrastructure, critical technology and the supply of critical inputs such as energy or raw materials.

The UK government is also sharpening its response to foreign investment, recently publishing updated guidance on the application of the National Security and Investment Act in relation to foreign acquisitions.

Outlook

Given the US administration’s hardline stance on tariffs and the positive momentum of dealmaking witnessed last year, as well as the value growth in the first quarter, could mark out 2025 as a strong year for Chinese M&A into Europe. The industrial and automotive sectors will continue to be hotly targeted, driven by China’s ambition to build up a global presence and avoid burdensome tariffs.

Yet European nations are not immune to protectionist sentiment. They will be eager to protect their own industries, particularly given China’s growing dominance in the global EV market and other high-growth industries. Regulation surrounding international deals is tightening across the continent, and dealmakers must learn to jump through the necessary hoops to get deals over the line.

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