China cut outbound investment into North America by more than a third last year amid greater domestic hurdles for outbound capital flows and heightened scrutiny around foreign investments in the US, according to an analysis from Baker McKenzie and the Rhodium Group.

Chinese foreign direct investment (FDI) into North America fell 34% to $5.8bn in 2021, even as broader Chinese outbound investment edged $4bn higher to $138bn, the analysis found. By contrast, Chinese FDI into Europe increased by 25% to $12.8bn.

Meantime, Chinese outbound M&A declined slightly to $23.7bn, with less politically sensitive sectors such as consumer products, entertainment and online gaming attracting the most interest. Consumer products and services and entertainment accounted for 41% of that value.

Hong Zhang, head of private equity for China at FenXun, Baker McKenzie’s Chinese partner firm, said: “Chinese investors remain strongly interested in overseas expansion, and growth of outbound investments by Chinese investors would have been stronger if not due to the continued disruption of the global pandemic in 2021.”

She added: “Desire for broader market entry, strategic synergy, access to resources and new energy, expansion of technology or product portfolios are all key considerations driving Chinese investors’ interests in looking abroad.”

Given increased foreign investment scrutiny from overseas regulators, many Chinese companies are also pursuing domestic options, said Jannan Crozier, global chair of Bakers’ global M&A practice. That tougher regulatory backdrop has prompted Chinese companies to ramp up investment in countries where regulators are more open to Chinese cash, such as Latin America. Chinese outbound M&A investment in Latin America reached $3bn last year, with a particular focus on mining assets and energy utilities.

Alejandro Mesa, head of Bakers’ energy law practice in Bogotá, said: “Several factors have contributed to Chinese M&A activity in Latin America. First, devaluation in Latin American countries has reduced the value of assets in USD terms. Second, there are an important number of governments who have expressed interest in working with China as a business partner over more traditional partnerships with the US. Third, China has more appetite for long-term investment in the region.”