The volume of China's outbound mergers and acquisitions fell in the first nine months of 2014, its first drop in three years, as state-owned firms turned cautious in the wake of a slowing economy and President Xi Jinping's crackdown on corruption.

The value of outbound deals from China dropped by nearly 23 percent from the same year-ago period to $37.58 billion, according to preliminary data from Thomson Reuters.

The decline was largely driven by a drop in overseas acquisitions as bureaucrats at state-owned enterprises shied away from making any deals that could invite unwarranted government scrutiny, bankers said.

Companies are also worried about taking on more assets in a weakening economy which could fall short of the government's year-end growth target of 7.5 percent.

"There is a risk-off mentality in China," said a Hong Kong-based M&A banker who declined to be named as he is not authorized to speak to the media. "The government purge on business practices has resulted in a lot of people who are perfectly innocent but not wanting to take risk."

China is the world's largest energy consumer and several investment bankers said that in the past, state-owned companies used to be their first port for energy deals. This year, however, when U.S. independent oil and gas producers Hess Inc, Newfield Exploration Co and Murphy Oil Corp were selling their Asia operations, no Chinese energy company showed interest, the bankers added.

Some Chinese firms, have, however conducted overseas deals this year. COFCO Corp, China's largest grain trader, agreed in April to pay $1.5 billion for a majority stake in Noble Group Ltd's (NOBG.SI) agribusiness, its second acquisition in less than two months.

Industry experts said they expect privately owned Chinese companies to lead outbound M&A in the future.

"The long-term outlook is still positive," said Milton Cheng, head of Baker & McKenzie's Asia Pacific M&A practice. "We expect China's appetite for outbound investment will remain strong, particularly from the private sector."

Private deals

The slowdown in China's outbound deals stands in sharp contrast to an otherwise buoyant M&A market in Asia.

In the first nine months of the year, the value of announced M&A deals involving companies in the Asia -acific excluding Japan rose 53.3 percent year-on-year to $552.6 billion, the highest total from the region since records began in 1980, Thomson Reuters data showed.

"The confidence we saw emerge in the last quarter of last year, and which continues into this year, together with other positives for M&A, such as strong balance sheets and relatively cheap financing, are very likely to sustain a strong level of activity going forward," said Roger Denny, head of Asia Pacific M&A for law firm Clifford Chance.

Private equity-backed M&A in Asia ex-Japan also reached a record for the first nine months of the year, boosted by at least 10 deals valued at more than $1 billion, the data showed.

Deals over $1 billion are rare for private equity in Asia - only three were completed last year. The deals completed so far this year have pushed volume up 247.7 percent year-on-year to $56 billion, the data shows.

The strong deal activity looks set to continue, with private equity sitting on $129 billion in capital which it needs to invest, and with another $113 billion being raised by funds already on the road, according to the latest figures from data provider Preqin.

Among the regional buyers, Singapore's state funds and its second-largest bank, Oversea-Chinese Banking Corp, were the most active so far this year. Notable deals include OCBC agreeing to buy Hong Kong's Wing Hang Bank for about $5 billion.

Singapore investors Temasek Holdings and GIC have also stepped up deal making. Temasek agreed to buy almost a quarter of beauty retailer A.S. Watson, which is owned by Hong Kong tycoon Li Ka-shing, for about $5.7 billion and sovereign wealth fund GIC has bought a stake in Britain's second largest roadside recovery group RAC Ltd.

GIC has also invested in private equity deals in the Philippines this year, as part of a growing trend of direct investments in unlisted firms.