Overview of China outbound investment in Q1 2019
Beijing, 6 May 2019
EY released the Overview of China’s Outbound Investment in Q1 2019, according to which, China’s non-financial ODI in Q1 2019 amounted to US$25.2 billion, down 1.1% YOY, and non-financial ODI in B&R countries totaled US$3.8 billion, up 4.2% YOY, higher than China’s overall growth rate1.
The announced value of China’s overseas M&As declined in Q1 2019 and was the lowest over a recent five-year period, decreasing by nearly 50% YOY. The most attractive M&A destinations to Chinese enterprises shifted to Asia and Oceania from Europe and North America. The value of announced M&A deals to Oceania increased significantly by over 80%. Sector concentration of China’s overseas M&As continued to increase. In terms of deal value, the M&A activities were led by TMT, life sciences and mining and metals, all of which representing nearly 70% of total deal value, while TMT remained the top sector by number of deals2. According to Loletta Chow, Global Leader of China Overseas Investment Network at EY, China’s overseas M&As declined significantly because ”in Q1 2019, Chinese enterprises generally took a more prudent approach to overseas M&As to avoid risks amid intense global trade relations, increasingly complicated geopolitics, and the slowdown in major economies. With slipping investment confidence in Europe and North America where foreign investment policies were tightened and uncertainty increased, many Chinese enterprises turned to Asia. Meanwhile, with economic transformation and upgrade, sectors such as TMT, life sciences and consumer products were expected to attract more capital. We recommend that investors plan prudently and be prepared to address challenges and optimize cross-border M&As in an increasingly regulated global environment.”
China’s overseas EPC projects continued to increase steadily in Q1 2019. The total value of new contracts grew by 13.5% YOY to US$50.6 billion, and new EPC contracts signed in B&R countries increased significantly by 47.7%.3
The structure of China’s ODI became optimized and diversified, while B&R cooperation advanced steadily
The beginning of 2019 saw steady, healthy and orderly cooperation and development in China’s ODI. According to the Ministry of Commerce (MOFCOM), China’s non-financial ODI reached US$25.2 billion in Q1 2019, down 1.1% YOY. Investment increased significantly in sectors including leasing and commercial services, manufacturing, wholesale and retail as well as information transfer/software and IT services, accounting for 27.4％, 21%, 9.1％ and 8.8%, respectively. It reflected that the structure of ODI was optimized continuously, and further control over “irrational” investment was implemented effectively. There was no new overseas investment in real estate, sports and entertainment sectors.
Moreover, the B&R construction continues to move forward steadily. In Q1 2019, China’s non-financial ODI in B&R countries amounted to US$3.8 billion, up 4.2% YOY, higher than China’s overall growth rate, and accounting for 15% of the total value.
Announced overseas M&A value and deals both decreased, as Chinese enterprises tended to be more cautious
In Q1 2019, 121 overseas M&A deals were announced by Chinese enterprises, decreased by 42.9% YOY, with a total value of US$10.8 billion, decreasing by 49.5% YOY.
- Driven by the transformation and upgrade of China’s economy, China’s overseas M&As increased in the emerging sectors with high technology and high added-value. By value, China’s overseas M&As were led by TMT (US$3.7 billion, or 33.9%), life sciences (US$1.9 billion, or 17.6%) and mining and metals (US$1.8 billion, or 16.7%) in Q1 2019, accounting for approximately 70% of the total value. Mining and metals, power and utilities and life sciences achieved YOY increase while other sectors declined
- By number of deals, TMT (35), consumer products (22) and life sciences (11) were the top sectors for Chinese investors, accounting for approximately 60%
- The most attractive M&A destinations to Chinese enterprises shifted to Asia and Oceania from Europe and North America. Driven by the BRI and the improved relationship between China and Australia, Chinese enterprises are expected to continue to increase investment in Asia-Pacific
- Despite the cautious overseas M&A activities in general, the announced M&As value by Chinese enterprises still increased dramatically in Oceania (up 81.8%), Africa (up 192.8%) and South America (up 165.2%). The key sectors were life science and consumer products in Oceania, power and utilities in South America, and mining and metals in Africa
- Affected by Brexit and the newly released European Union (EU) framework for the screening of foreign direct investments (FDIs) (was officially effective in April 2019), Chinese enterprises further reduced their M&A activities in Europe. In Q1 2019, the announced M&A deal value in Europe was decreased by nearly 90% YOY. Chinese enterprises’ investment in Europe is expected to gradually resume with the mitigation of Brexit-related uncertainties and the clarification of procedures of the new EU framework for the screening of FDIs
Large overseas EPC projects become a key driver for local development
According to the MOFCOM, China’s overseas EPC projects increased steadily in Q1 2019. The value of new contracts signed by Chinese enterprises reached US$50.6 billion, up 13.5% YOY. The value of new EPC contracts signed in B&R countries increased significantly by 47.7%, accounting for 60.2% of the total value and increased 13.9 percentage points YOY. Most overseas EPC projects were large projects and have become a key driver for local development. In Q1 2019, the number of overseas EPC projects that valued over US$50 million reached 177, increased 19 projects YOY, accounting for 83.2% of the total value of newly signed projects.
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1 Source: MOFCOM
2 Source: Source: ThomsonOne, Mergermarket, including overseas M&As of Hong Kong, Macau and Taiwan and deals have been announced but not yet completed; EY analysis
3 Source: MOFCOM
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Notes to Editors
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