As Chinese authorities continue their squeeze on overseas acquisitions, Dalian Wanda has pulled out of a high-profile property development at Nine Elms Square in London, three months after contracts were exchanged.

Dalian Wanda is a global entertainment conglomerate and China's largest commercial property developer, but over the past twelve months has been under pressure to slow down the pace of its overseas expansion, and even to dispose of assets.

The State Council recently released formal guidelines on overseas acquisitions, in order to reduce the outflow of capital. Real estate has been highlighted as an area where it intends to slow the pace of deals. Manufacturing, high-tech and infrastructure investments are more likely to get the green light from the authorities.

More than any other company, Dalian Wanda has been feeling the pressure from the authorities to scale back its overseas activities. There have even been rumours in the market that company chairman Wang Jianlin cannot leave China, but in an August 28 statement the company dismissed these as baseless and spread by people with ulterior motives.

Two other Chinese buyers stepped in to complete the Nine Elms site acquisition. The site has now been sold to CC Land Holdings and R&F Properties.

CC Land Holdings is controlled by Chongqing-based tycoon Cheung Chung Kiu, but is a Hong Kong-based company, which gives it more flexibility to do deals in the current environment. In May of this year, CC Land completed the acquisition of the Leadenhall Building (better known as the Cheesegrater) office tower in London for 1.15 billion pounds. R&F Properties is based in Guangzhou.

Back in June, Vinci St Modwen (VSM), a 50-50 joint venture between St Modwen Properties and French infrastructure firm Vinci, announced that it had exchanged contracts for the sale of its interest in the Nine Elms Square site in London to Wanda Commercial Properties (Hong Kong), for 470 million pounds in cash.

VSM will still be building the New Covent Garden Market, safeguarding the 2,500 flower market jobs. The remaining ten acres of development land are to be released in phases for future transformation into three distinct character areas to be known as Nine Elms Gardens, Nine Elms Grove and Thessaly Road, featuring residential, commercial, retail and leisure uses. There will be 1,900 luxury flats.

VSM said that completion of the sale of these ten acres was expected to occur “later in the summer” following demolition of the former New Covent Garden flower market, but since then Wanda has been scaling back its activities and was unable to complete the transaction.

The Nine Elms site lies on the south bank of the River Thames between Battersea Park and Vauxhall, and not far from the Battersea Power Station luxury property development. Wanda is still active in the area, since it is developing the 700-million-pound One Nine Elms project which comprises two towers. In addition to a hotel, there will be upscale apartments.

Dalian Wanda is a major player in the entertainment sector and owns the world's largest chain of cinemas. Founder Wang Jianlin is one of the richest men in China, but his massive overseas expansion has put him at the centre of the Chinese government's drive to curtail what it views as excessive and irrational acquisitions.

Anbang Life Insurance and Hainan-based conglomerate HNA Group are also being closely watched by the authorites, who can bring pressure on the banks to scale back their support for acquisitions.

Already in March a planned US$1 billion acquisition of the US television company Dick Clark Productions was cancelled, after Dalian Wanda failed to come through on an agreement signed last November.

Last month, Dalian Wanda raised US$9.5 billion from agreements to sell domestic hotels and theme parks. Sunac China acquired a portfolio of Cultural Tourism theme parks. R&F Properties – the same company that came in on the Nine Elms deal – agreed to acquire a portfolio of 77 hotels. Sunac is based in Tianjin.

A recent report from consultants EY cited Mergermarket statistics showing that Chinese companies announced 302 overseas M&A deals worth US$65.7 billion in H1 2017, down 51% compared to the same period in 2016.

The report cited three main reasons for the decline in China’s cross-border M&As. Firstly, Chinese regulators have issued policies to prevent Chinese companies from making irrational outbound investment. Secondly, compared to 2016 when a series of large deals, including Syngenta, dominated the M&A market, there was a decline in both the size and number of deals. Thirdly, increased geopolitical and economic uncertainties have led Chinese companies to be more cautious in investing overseas.

Chen Shuang, rotating chairman of the China Mergers and Acquisitions Association (CMAA) and executive director and CEO of China Everbright Limited, comments, “we believe that the prospect for China’s outbound investment remains positive over the long-term despite some fluctuations in the short-run. Recent data shows that China’s outbound investment is steadily slowing down and Chinese companies are becoming more rational. With various sources of financing and increasingly diversified ownership of Chinese investors, financing channels are becoming more varied. Buyout funds with deep insights and resources are playing an increasingly important role in overseas mergers and acquisitions, as they can help Chinese companies manage risks more effectively and succeed overseas.”

Beijing-headquartered CMAA is a non-profit and non-government organization approved by the State Council and the Ministry of Civil Affairs.

Now that the State Council has its policy in place, which effectively formalizes some of the unofficial guidance from the past twelve months, Chinese companies are expected to be deterred from chasing trophy property assets around the world. There will also be a brake on the acquisition of football clubs, after both Inter Milan and AC Milan were acquired by Chinese buyers in 2016 and 2017. Back in 2015, Dalian Wanda group acquired a 20% stake in Atletico Madrid.

Instead the focus will get back to infrastructure, technology and manufacturing projects, many of which fall broadly within the aims of the Belt Road initiative.