15 minute read 14 Aug 2023

Overview of China outbound investment of H1 2023

15 minute read 14 Aug 2023

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Overview of China outbound investment of H1 2023

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China’s outward direct investment maintains growth momentum, overseas M&A in Latin America and Oceania surges despite the total continues to decline. China overall ODI was US$75.4 billion in H1 2023, up 9.6% YOY.

Since the beginning of this year, China’s economic societies have resumed normal operations, and the economy has continued to recover, with a 5.5% economic growth in the first half³, meeting expectations. The momentum for Chinese companies to go abroad has also strengthened, as ODI continues to grow. Upcoming events in the second half of the year, such as the third Belt and Road Forum for International Cooperation and the inaugural China International Supply Chain Expo, will provide further platforms for international cooperation and development for Chinese companies.

Additionally, the recent release of the Chinese government’s Opinions on Promoting the Development and Growth of the Private Economy explicitly encourages private enterprises (POEs) to expand overseas operations and actively participate in the Belt and Road Initiative (BRI). It also outlines support for guiding and assisting private enterprises in countering external challenges such as trade protectionism, unilateralism, long-arm jurisdiction and enhancing coordination among relevant departments to establish risk prevention and resolution mechanisms for the safety of private entrepreneurs and their overseas interests. EY believes that these measures will give confidence and assurance for POEs to boldly go abroad. As China’s economic development continues to accumulate momentum, Chinese companies’ overseas expansion is expected to accelerate in the second half of the year. However, companies should remain cautious about external challenges, such as continuous slowdown in international market demand, weaker-than-expected global economic recovery, increasing scrutiny on foreign direct investments, and the recent volatility in the RMB exchange rate, which requires more attention.

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ODI continued to show stable growth, with a faster pace along the B&R¹

Data reveals that in H1 2023, China's overall ODI reached US$75.4 billion, marking a 9.6% YOY increase. Among them, non-financial ODI amounted to US$62.3 billion, up 14.8% YOY, of which non-financial ODI in B&R countries reached US$11.6 billion, a 15.4% YOY increase, accounting for 18.6% of the total for the same period. These investments were mainly directed toward countries and regions such as ASEAN, the UAE, Kazakhstan and Russia.

Figure 1: China overall ODI (US$ billion)

*Note: Due to rounding, some totals may not correspond with the sum of the individual quarters.*

*Sources: Monthly Statistics in Brief, China MOFCOM*

Figure 2: China non-financial ODI along the B&R (US$ billion)

Latin America witnessed a significant surge in M&A deal value, while overseas deal volume in Q2 hit a new low²

In H1 2023, Chinese enterprises announced a total overseas M&A value of only US$11.7 billion, the lowest for the same period in nearly a decade, representing a 14% YOY decrease. The volume of announced deals in H1 2023 was 224, declining by 13% compared to the previous year. Moreover, deal volume announced in the second quarter dropped significantly by 33% QOQ, reaching a new low for a single quarter in recent years.

Figure 3: Value of announced China overseas M&As (US$ billion)

*Note: Due to rounding, some totals may not correspond with the sum of the individual quarters.*

*Sources: Refinitiv; Mergermarket, including data from Hong Kong, Macau and Taiwan, and deals that have been announced but not yet completed, data was downloaded on 5 July 2023; EY analysis*

Figure 4: Volume of announced China overseas M&As

Figure 5: Announced China overseas M&As by sector** in H1 2023 (by deal value)

** AM&M refers to advanced manufacturing & mobility; RHC refers to real estate, hospitality & construction; HCLS refers to health care & life sciences; FS refers to financial services; CP refers to consumer products; P&U refers to power & utilities; M&M refers to mining & metals.

*Sources: Refinitiv; Mergermarket, including data from Hong Kong, Macau and Taiwan, and deals that have been announced but not yet completed, data was downloaded on 5 July 2023; EY analysis*

Figure 6: Announced China overseas M&As by sector** in H1 2023 (by deal volume)

Sector analysis

In terms of M&A deal value, the top three popular sectors in H1 2023 were power & utilities, financial services, and advanced manufacturing & mobility, together accounting for 54% of the total deal value. Power & utilities experienced a substantial growth of 438%, while financial services and real estate, hospitality & construction also recorded certain increases. Notable large transactions announced in the second quarter this year included: 1) a Chinese enterprise acquiring two power distribution businesses and energy service companies in Peru (totaling approximately US$2.9 billion), which will help the Chinese enterprise expand and consolidate its presence in the Latin American market; 2) a Chinese enterprise acquiring a real estate investment trust in the UK (approximately US$1 billion).

In terms of deal volume, the popular sectors were TMT, advanced manufacturing & mobility, and financial services. TMT remained the top hot sector, announcing 69 transactions, accounting for over 30% of the total deal volume, far surpassing other sectors.
Regional analysis
Latin America: The announced M&A deal value by Chinese companies in Latin America ranked first for the first time in nearly a decade, reaching US$3.2 billion, up 1,737% YOY. In recent years, China’s circle of friends in Latin America has been continuously expanding, with Brazilian president’s visit to China in H1 2023, Honduras establishing diplomatic relations with China, and China and Argentina signing a cooperation plan under the BRI. These developments have facilitated the progress of China-Latin America economic and trade relations. Additionally, the 16th China-Latin America Entrepreneurs Summit is scheduled to be held in Beijing in the second half of this year, which is expected to further promote exchanges and cooperation between Chinese and Latin American companies for mutual development. The economic growth of major Latin American countries this year is expected to be 2.6% for Mexico, 2.4% for Peru, and 2.1% for Brazil, leading other Latin American nations. However, Argentina’s economy is expected to decline by 2.5%⁴.

Europe: The announced M&A deal value by Chinese companies in Europe was US$3 billion, the lowest for the same period in nearly a decade, with a YOY decrease of 44%. The volume of announced deals was 61, declining by 24% compared to the previous year. Over 40% of the M&A deal value was invested in the financial services sector, with other popular sectors including mining & metals and real estate, hospitality & construction. The main destinations for investments were the UK and Germany, with M&A deal values rising against the trend by 117% and 91%, respectively. The two countries’ combined M&A deal values accounted for 86% of the total announced M&A deals in Europe. Lately, high-level visits between China and Europe have been frequent, and China attaches great importance to the European market in terms of economic and trade cooperation. In June this year, Chinese Premier Li Qiang made his first official visit to Germany and France after taking office. Leaders from both Germany and France expressed their opposition to any form of “decoupling” and welcomed Chinese companies’ investment in their countries. In the future, China is expected to deepen cooperation with Germany and France in areas such as automobile manufacturing, high technology, new energy, digital economy and semiconductors. In 2023, the overall economic growth of European countries will be weak, with relatively high inflation levels. The Eurozone is expected to grow by only 0.9% this year, far below the global average of 3%, and Germany is expected to decline by 0.3%⁴.

North America: The announced M&A deal value by Chinese companies in North America was US$2 billion, a YOY decrease of 28%, with 49 announced deals, representing an increase of 11% compared to the previous year. North America is the only continent where the M&A deal volume has increased. The TMT sector saw a significant growth in transaction volume by 150%, mainly directed toward software development and electronic components. M&A deals in the healthcare & life sciences and TMT sectors accounted for 75% of the total M&A deal value by Chinese companies in North America. Currently, the US inflation rate has decreased to around 3%⁵. It is predicted that the US economy will grow by 1.8% this year, with strong growth in consumer spending. The IMF has revised its forecast for the US economy by 0.2 percentage points higher than the April forecast⁴.

Asia: The announced M&A deal value by Chinese companies in Asia was US$1.6 billion, a YOY decrease of 61%. The number of announced deals was 87, a YOY decrease of 3%. The top three M&A destinations in Asia were Vietnam, Singapore and Japan, accounting for 64% of the total M&A deal value, with investments in Vietnam showing a counter-trend increase, with both the investment amount and number of deals increasing by over 200%. Overall, investment activity has increased in ASEAN countries, with a YOY growth of 35% in the number of M&A deals. The main sectors for Chinese M&A in Asia were real estate, hospitality & construction, financial services and advanced manufacturing & mobility. It is predicted that India and the ASEAN-5⁶countries will grow by 6.1% and 4.6% respectively this year, with the Philippines and Vietnam leading ASEAN with economic growth rates of 6% and 5.8%, respectively⁴.

Oceania: The announced M&A deal value by Chinese companies in Oceania was US$1.4 billion, up 225% YOY. The investments were mainly in Australia’s mining & metals, real estate, hospitality & construction, and consumer products sectors.

Africa: The announced M&A deal value by Chinese companies in Africa was US$610 million, down 24% YOY. The investments were mainly in South Africa and Egypt’s advanced manufacturing & mobility sector. A major transaction in the second quarter was the acquisition of a South African cement producer by a Chinese company, which was a key move in the company’s active overseas development strategy and will strengthen its leading position in the region. China has become the fourth-largest source of investment in Africa and remains the largest trading partner⁷. Recently, the third China-Africa Economic and Trade Expo was successfully held in China, with the number of signed agreements reaching a record high. China-Africa economic and trade cooperation is moving towards a new stage of high-quality development. This year, East African countries are expected to maintain high economic growth, with Ethiopia, Kenya and Tanzania expected to grow by 6.1%, 5.3% and 5.2%, respectively⁴.

Figure 7: Deal value and volume of China overseas M&As by continent in H1 2023

*Sources: Refinitiv; Mergermarket, including data from Hong Kong, Macau and Taiwan, and deals that have been announced but not yet completed, data was downloaded on 5 July 2023; EY analysis*

Figure 8: Top 10 destinations of China overseas M&As in H1 2023 (By deal value: US$ billion)

Figure 9: Top 10 destinations of China overseas M&As in H1 2023 (By deal volume)

China overseas EPC showed a continuous decline in newly-signed contract value, while completed turnover remained stable¹

In H1 2023, Chinese enterprises’ newly-signed EPC contracts worth US$94.7 billion, representing an 8.6% YOY decrease. Among them, B&R new contracts amounted to US$47.6 billion, with an 8.8% YOY decrease, accounting for 50.3% of the total for the same period. Chinese enterprises’ overseas EPC completed turnover reached US$70.7 billion, remaining relatively stable. B&R completed turnover amounted to US$40.1 billion, up 4.4% YOY, constituting 56.7% of the total for the same period¹. Notable new overseas EPC projects signed by Chinese enterprises in Q2 include 1) a residential tower project in the UAE with an investment of about US$1 billion; 2) an East African crude oil export pipeline project with a contract value about US$806 million; 3) a petrochemical engineering project in Saudi Arabia with a contract value about US$720 million; 4) an industrial park project in Ethiopia with a contract value about US$600 million⁸.

Figure 10: Value of newly-signed China overseas EPC contracts (US$ billion)

*Note: Due to rounding, some totals may not correspond with the sum of the individual quarters.*

*Source: Monthly Statistics in Brief, China MOFCOM*

Figure 11: Value of completed turnover of China overseas EPC contracts (US$ billion)

Show article references#Hide article references
Source: China MOFCOM

Sources: Refinitiv; Mergermarket, including data from Hong Kong, Macau and Taiwan, and deals that have been announced but not yet completed, data was downloaded on 5 July 2023; EY analysis

Source: China National Bureau of Statistics

Source: World Economic Outlook update, IMF, July 2023; World Economic Outlook, IMF, April 2023

Source: U.S. Department of Labor, June 2023 data

Note: ASEAN-5 includes Malaysia, Indonesia, Thailand, the Philippines, and Singapore

Source: The State Council of China

Source: Public domain information

Summary

EY Greater China region released the Overview of China outbound investment of H1 of 2023. The report indicates that China’s overall OD grew by 9.6% YOY, reaching US$75.4 billion. However, overseas M&A activities remained sluggish, with announced deal value at US$11.7 billion, the lowest for the same period in nearly a decade, with a YOY decline of 14%. Latin America emerged as the continent with the largest announced M&A deal value in this period.

About this article

Loletta Chow

By Loletta Chow

EY Global China Overseas Investment Network Leader, EY Belt & Road Task Force Leader and Asia-Pacific EY Private Leader

Seasoned in China outbound investment and Belt and Road Initiative.

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Overview of China outbound investment of H1 2023

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