China M&A: VC surge in DeepSeek, AI creates opportunities amid overall dip

China's mergers and acquisitions (M&A) market is projected to rebound in 2025 after a challenging 2024, brimming with growth from the technology sector and a surge in venture capital (VC) deals, according to PwC's latest M&A Review.

According to the report, M&A activity is down 16% at a 10-year low of US$277 billion last year, but a closer look reveals the number of deals grew by 24% to 10,654, driven by VC activity, PwC said. This surge in deal volume, despite the value decline, points to a market increasingly driven by smaller transactions, particularly in the high-tech and industrial sectors. Only 39 transactions exceeded US$1 billion in 2024, the fewest in nearly a decade.

PwC projects a potential double-digit growth pace for M&A in 2025, while Natixis forecasts a 10-15% increase. The rise of AI challenger start-ups like DeepSeek brings excitement in the sector and is expected to push growth. The report also highlights demand for overseas investments by Chinese companies, exits by private equity funds, and restructuring involving Chinese state-owned enterprises (SOEs) as catalysts for growth. Government-led consolidation in the brokerage industry and potential mergers among state-controlled carmakers are also anticipated to boost activity.

"High technology and industrial M&A transactions accounted for 39% and 21% of the transaction volumes respectively, indicating a large number of small-scale deals in the market, such as early-stage financing in the artificial intelligence sector," the report showed.