ODI develops steadily as outbound investment in some industries grew relatively quickly
Statistics showed that China overall ODI was US$146.5 billion in 2022, up 0.9% YOY. China non-financial ODI was US$116.9 billion in 2022, up 2.8% YOY. Outbound investment in some industries grew relatively quickly, such as wholesale & retail, manufacturing, as well as leasing and business services, up 19.5%, 17.4% and 5.8% YOY respectively. The B&R non-financial ODI was US$21.0 billion, up 3.3% YOY and representing 17.9% of the total. The investments were made mainly in ASEAN, Pakistan, the United Arab Emirates, Serbia and Bangladesh1.
Figure 1: China overall ODI (US$ billion)
Figure 2: China non-financial ODI along the B&R (US$ billion)
China overseas M&As reached a historic low value in the year however activities in some regions and sectors increased
In 2022, the value of announced China overseas M&As reached US$28.7 billion, down 52% YOY to a historic low. On the one hand, China overseas investment sentiment turned cautious following the impact brought by the global economic dynamics and China’s pandemic policies; on the other hand, the value of more deals was undisclosed affecting the statistical results. There were 507 announced China overseas M&A deals during the year, down 6% YOY. Deal volumes in some regions and sectors increased as activities picked up compared to the previous year.
Figure 3: Value of announced China overseas M&As (US$ billion)
Figure 4: China overseas M&As by sector in 2022 (by deal value, YOY %)
Figure 5: China overseas M&As by sector in 2022 (by deal volume, YOY %)
Figure 6: Regional distribution of announced China overseas M&As by sector in 2022 (by deal value)
In 2022, by deal value, 55% of the total took place in the top three sectors, namely TMT, health care & life sciences, and real estate, hospitality & construction. Mining & metals was the only sector to see growth in the year to US$3.5 billion, recording an increase of 33% YOY by value, mainly in the areas of lithium mining and gold mine operation, etc. Moreover, a record high of 15% of the total value in 2022 came from the health care & life sciences sector.
By deal volume, half of the total took place in the top three sectors, namely TMT, advanced manufacturing & mobility, and health care & life sciences. Many sectors recorded YOY growths and there was gradual recovery of the deal activities. Of which, deals in the mining & metals sector recorded the largest YOY increase of 111% whilst those in the sectors of real estate, hospitality & construction (38%), advanced manufacturing & mobility (20%), and consumer products (17%) also increased to different extents during the year.
In 2022, significant regional distribution patterns were observed across various sectors, with some sectors showing a high levels of regional concentration. For instance, 75% of the health care & life sciences deal value took place in North America; 64% and 32% of the consumer goods deal value happened in Asia and Oceania respectively. About 80% of outbound power & utilities deal value made by Chinese enterprises took place in Asia, up 87% YOY, primarily in the power generation and manufacturing chain of renewable energy such as solar and wind. The investments were aligned with an increasing need of green energy transition in Asia. In addition, though the investments in the advanced manufacturing & mobility recorded a drop of 53% in the year, more investment was made in North America and Europe, up 178% and 43% respectively, primarily in the areas of transport infrastructure, automobiles & related components, and chemicals.
- Asia: The value of announced China overseas M&As in Asia was US$10.8 billion in 2022, down 61% YOY. There were 171 announced deals, up 4% YOY. Asia was still the top destination for China overseas M&As by both value and volume, accounting for 37% and 34% of the total respectively. Four out of the top 10 investment destinations of China overseas M&As were situated in Asia, namely Singapore, Japan, South Korea and Indonesia, collectively accounting for nearly 80% of the total value in Asia. TMT, real estate, hospitality & construction, and consumer products were the top sectors for investment by Chinese enterprises in Asia, collectively accounting for 66% of the total value in the continent. Growth prospect of Asia for 2023 has been relatively positive compared to the global economic forecasts. Of which, the 2023 growth estimates for India may be at 6.1%, ASEAN-54 at 4.3%, the Middle East and Central Asia at 3.2%3. In addition, since the end of last year, leaders in China made multiple diplomatic interactions with some countries in ASEAN and the Middle East and reached a number of cooperation agreements to deepen the investment, economic and trade cooperation; the Asian region is expected to remain a popular investment destination for Chinese enterprises.
- Europe: The value of announced China overseas M&As in Europe was US$7.6 billion, down 52% YOY. There were 170 announced deals, up 6% YOY. A mega-scale deal was made in the Netherlands in 2022 making it the top invested country in Europe by Chinese enterprises. The UK and Germany were more popular investment destinations in Europe by deal volume, collectively accounting for 42% of the total in the continent. The top sector TMT took up 45% of the total value in the continent. In 2022, inflation in Europe increased to an all-time high though rising prices in some countries slowed by year-end. High inflation since 2022 is likely to remain as a major challenge together with climbing interest rates. Businesses might experience greater challenges. Currently, growth in the European Union was forecast by IMF to be 0.7% in 2023. Growth in the United Kingdom was forecast to be -0.6%, one of the worst performers among major European economies3. Thus, vigilance is called for Chinese enterprises investing in Europe in view of the impact of the macroeconomic uncertainties and geopolitical risks.
- North America: The value of announced China overseas M&As in North America was US$6.3 billion, down 33% YOY. There were 82 announced deals, down 42% YOY. Both value and volume reached the historic lows. However, two major sectors in North America in 2022 – health care & life sciences and advanced manufacturing & mobility – recorded new highs by value in nearly four years, up 42% and 178% YOY respectively, and collectively accounting for 76% of the total value in the continent. By deal volume, health care & life sciences continued to be the top sector, taking up a further increase to 33% of the total in the continent. This reflected the sector focus of Chinese enterprises in North America amid the impact of geopolitics. Looking ahead in 2023, some can anticipate the threat of an economic recession in the US but advantages of technologies and market size of the US can be attractive to China overseas investors in some less sensitive sectors. The impact of geopolitics may be carefully considered by Chinese enterprises when investing in North America.
- Latin America: The value of announced China overseas M&As in Latin America was US$1.6 billion, down 27% YOY. There were 26 announced deals, up 44% YOY. Argentina was the top investment destination. The investment mainly due to a mega deal in mining & metals sector during the year.
- Oceania: The value of announced China overseas M&As in Oceania was US$1.4 billion, down 41% YOY. Australia was the top investment destination, mainly in the consumer products sector. There were 45 announced deals, up 50% YOY. Of which, the mining & metals and consumer products sectors recorded increased deal volumes.
- Africa: The value of announced China overseas M&As in Africa was US$1.1 billion, down 46% YOY. There were 13 announced deals, down 43% YOY. Zimbabwe and the Democratic Republic of Congo were the top investment destinations. The investment mainly went to the mining & metals sector.
Figure 7: Deal value and volume of China overseas M&As by continent in 2022
Figure 8: Top 10 destinations of China overseas M&As in 2022 (By deal value: US$ billion)
Figure 9: Top 10 destinations of China overseas M&As in 2022 (By deal volume)
Steady development of overseas EPC projects helps boost growth of destination countries
Newly-signed China overseas EPC projects decreased 2.1% YOY to US$253.1 billion in 2022. In the B&R countries and regions, Chinese enterprises newly-signed EPC projects of US$129.6 billion, with a decrease of 3% YOY, which represented 51.2% of the total during the year1. Although 2022 was full of challenges, more new overseas projects were signed by Chinese enterprises, such as the tunnelling projects in Neom and Madinah, Saudi Arabia in the transport infrastructure, in addition to the Standard Gauge Central Railway project in Tanzania. In the energy and power area, there were the national natural gas pipeline project in Argentina, the power transmission and transformation project in Angola, the largest wind power station project in Uzbekistan, the photovoltaic power plant project in Saudi Arabia, as well as other major projects including the social housing in Saudi Arabia5.
In 2022, the completed turnover of Chinese enterprises’ foreign contracting projects was US$155.0 billion, which was about the same compared to that of last year, while the completed turnover in the B&R countries and regions was US$84.9 billion, down 5% YOY, accounting for 54.8% of the total during the year1. In 2022, Chinese EPC service providers overcame numerous obstacles to implement an assortment of landmark projects, such as the trial operation of ASEAN’s first high-speed railway, the official launch of Cambodia’s first expressway, the completion of the southern portion of South Asia’s first underwater tunnel (namely the Kanapuri River Bottom Tunnel in Bangladesh), the launch of the Pelješac Bridge in Croatia and the first Chinese standard construction highway in Cameroon, as well as the smooth delivery of the main stadium project of the Qatar World Cup5. These completed projects showcased technical and competitive advantages of Chinese EPC enterprises and also helped drive economic development of the destination countries and provide benefits to their peoples. The Chinese EPC providers have accumulated know-how over years for a comparative advantage in the international engineering market. With reference to the latest international contractor rankings released by the Engineering News Record, seven Chinese enterprises were listed on the top 20 in 2022, adding one enterprise compared to 2021. In total, 79 Chinese enterprises were among the top 250 international contractors list, accounting for more than 30% of the total6. Amid the downward pressure in the global economic outlook in 2023, infrastructure projects may drive investment and provide economic momentum in destination countries. Chinese construction players are likely to continue to expand their international footprints and enter the fields of intelligent digitalization and low-carbon green transition with more benchmarking projects in the future.
Figure 10: Value of newly signed China overseas EPC contracts (US$ billion)
Figure 11: Completed turnover of China overseas EPC contracts (US$ billion)
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- Source: China MOFCOM
- Source: Refinitiv; Mergermarket, including data from Hong Kong, Macau and Taiwan, and deals that have been announced but not yet completed, data was downloaded on 4 January 2023; EY analysis
- Source: World Economic Outlook, IMF, January 2023
- Note: ASEAN-5 refers to Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
- Source: Public domain information
- Source: The list of 2022 Top 250 Global Contractors released by Engineering News Record, August 2022; EY analysis
EY releases the Overview of China outbound investment of 2022. The overview shows that China ODI was generally stable with an increase of 0.9% YOY and outbound investment in some industries grew relatively quickly. Nonetheless, the outbound M&A activities continued to slow recording a value drop of 52% YOY, and a volume drop of 6% YOY. Asia remained the top overseas M&A destination during the year.