Geopolitical Risk Is Reshaping Asian M&A in Ways That Are Still Underappreciated

The New Dominant Variable

The geopolitical environment has become the single most important variable in Asian M&A, surpassing interest rates, valuation multiples, and sector dynamics as the factor most likely to determine whether a transaction succeeds or fails. The US-China technology rivalry, the multiplication of foreign investment screening regimes across the region, evolving sanctions and export control frameworks, and intensifying great-power competition are fundamentally reshaping what deals are possible, who can participate as buyers and sellers, and how transactions must be structured and executed.

Yet despite the magnitude of these shifts, many dealmakers and investors continue to underestimate the depth and permanence of the changes underway. There is a persistent tendency to treat geopolitical risk as a temporary disruption rather than a structural transformation of the M&A landscape.

The China Bifurcation

The most visible manifestation of geopolitical forces in Asian M&A is the bifurcation of cross-border deal flows involving China. Inbound investment from Western countries into China has declined sharply, driven by a combination of regulatory restrictions, political risk, supply chain diversification strategies, and growing investor caution about the operating environment. Outbound Chinese acquisitions in sectors deemed sensitive by Western governments -- technology, critical infrastructure, energy, and advanced manufacturing -- face increasing obstacles from foreign investment screening regimes in the United States, Europe, Australia, and other jurisdictions.

The practical effect of this bifurcation is that China-focused M&A is increasingly domestic in character. Chinese companies are acquiring other Chinese companies, Chinese private equity firms are leading transactions that once attracted international sponsors, and the cross-border dimension of China's deal market is narrowing in ways that have significant implications for global capital flows and strategic competition.

The Second-Order Effects

Less appreciated but equally consequential are the second-order effects of geopolitical competition on transactions that do not directly involve Chinese parties. The CK Hutchison port sale drew extraordinary regulatory scrutiny not because of direct Chinese government involvement in the acquiring entity but because the assets in question were deemed strategically significant in the context of broader geopolitical competition for control of critical global infrastructure.

This pattern is likely to become more common. Transactions involving ports, telecommunications infrastructure, semiconductor supply chains, critical minerals, energy assets, and data-intensive businesses will face heightened scrutiny regardless of the nationality of the parties, simply because these asset classes have become focal points of geopolitical competition. The definition of what constitutes a "sensitive" transaction is expanding, and the thresholds for triggering government review are declining.

Implications for Practitioners

For M&A practitioners operating in Asia, the implications are profound and touch every aspect of deal execution.

Regulatory risk assessment must now be conducted at the earliest stages of transaction planning, not as an afterthought during due diligence. The universe of potential acquirers for any given asset must be evaluated through a geopolitical lens, considering not just the buyer's nationality but also its shareholder base, funding sources, management composition, and government relationships.

Deal timelines have lengthened significantly for transactions that trigger foreign investment reviews in one or more jurisdictions. A cross-border acquisition that might have closed in three to four months a decade ago may now require six to twelve months or longer to navigate the full complement of regulatory approvals, particularly if the target operates in a sector or geography that multiple governments consider strategically significant.

Deal structuring must evolve to reflect these realities. Break fee structures, condition precedent formulations, and walk-away rights must be carefully calibrated to account for the possibility that regulatory approvals may be delayed, conditioned, or ultimately denied for reasons that have nothing to do with competition law and everything to do with national security and geopolitical strategy. Reverse break fees have become larger and more common as sellers demand compensation for the increased risk that transactions may fail at the regulatory stage.

An Irreversible Shift

This is not a temporary disruption that will normalize when political tensions ease. The institutional infrastructure of geopolitical risk in M&A -- the screening regimes, the review authorities, the political expectations, and the bureaucratic processes -- has been built and will persist regardless of shifts in diplomatic tone between major powers. Dealmakers who fail to internalize these changes and adapt their processes, timelines, and risk assessments accordingly will encounter costly surprises that could have been anticipated and managed.

The most successful M&A practitioners in Asia over the coming decade will be those who develop genuine expertise in navigating the intersection of commercial dealmaking and geopolitical strategy. This requires not just legal skill in handling regulatory filings but strategic judgment about the direction of government policy and the ability to structure transactions that achieve commercial objectives within the constraints imposed by the new geopolitical reality.