8 minute read 15 Nov 2021
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Overview of China outbound investment of the first three quarters of 2021

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.

8 minute read 15 Nov 2021
Related topics COIN

Mixed prospects for global economic recovery were observed; overseas M&As in health sector performed impressively. China’s overall outward direct investment (ODI) maintained its steady development in the first three quarters of 2021 with a year-on-year (YOY) increase of 6.3% to US$107.1 billion.

In brief
  • China’s overall ODI reached US$107.1 billion in the first three quarters of 2021, up 6.3% YOY, whereas non-financial ODI reached US$80.8 billion, up 2.4% YOY. Belt and Road (B&R) non-financial ODI increased 14.2% YOY, which continued to outperform the overall growth rate.
  • The announced value of China overseas mergers and acquisitions (M&As) reached US$46.3 billion, up 79% YOY. Quality development in overseas M&As was on track and strong participation of private equities and investment companies was observed.
  • Newly-signed China overseas engineering, procurement and construction (EPC) projects increased 6.2% YOY to US$159.6 billion, mainly in the fields of transport & warehousing, general construction, etc. The overseas EPC turnover was US$107.4 billion, up 17.7% YOY.

With reference to the latest IMF forecasts, the global economy is expected to grow by 5.9% in 2021¹. However, the pressures of inflation and energy supply shortage have added uncertainty. In addition, varying severity of the pandemic and speeds of vaccination across the continents, together with diverging economic structures, have led to geographical disparity of the anticipated economic recovery. Macro market landscape analysis and risk management can be essential in the Chinese overseas M&A planning and execution as they look to capture market opportunities brought by the improved economy in such arenas as digital economy, cross-border e-commerce, supply chain and logistics and consumer products. Meanwhile, the Action Plan for Peaking Carbon Dioxide Emissions before 2030 issued by the State Council of China at the end of October 2021 sets out a clear path in the Chinese energy transformation and therefore greener development in industries and consumption. This will shed the light for Chinese enterprises on investing in overseas energy and carbon reduction technologies, etc and also further encourage them to optimize their global supply chains.

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Investments along the B&R continued to outperform the overall growth rate

The data from China’s MOFCOM showed that China’s overall ODI reached US$107.1 billion in the first three quarters of 2021, up 6.3% YOY². The non-financial ODI reached US$80.8 billion, up 2.4% YOY, mainly in manufacturing; information transmission, software and information technology services, transportation, as well as scientific research and technology services. The B&R non-financial ODI reached US$14.9 billion, up 14.2% YOY, representing 18.4% of the total non-financial ODI, up 1.9 percentage points YOY, mainly to ASEAN, the United Arab Emirates (UAE), Kazakhstan, Bangladesh, etc.

Figure 1: China’s non-financial ODI (US$ billion)

Source: China MOFCOM 

Quality development in overseas M&As was on track; strong participation of private equities and investment companies was observed

In the first three quarters of 2021, the announced China overseas M&A value reached US$46.3 billion, up 79% YOY; yet the value was still 13% less than the same period of 2019 before the pandemic occurred³. There were 382 announced deals which decreased 3% YOY. Among such, we observed strong participation of private equities and investment companies in the China overseas M&As. Nearly half of the China announced overseas deal value and over 40% of the deal volume in the period with each transaction exceeding US$500 million were made by investor groups of private equities and investment companies, representing a YOY increase of 20 percentage points in terms of both deal value and volume. It shows an increased internationalization of Chinese institutional investors. It also indirectly indicated an increase of overseas targets in the markets as the global economy sets to revitalize.

Figure 2: Announced value of China overseas M&As (US$ billion)

Sources: ThomsonOne; Mergermarket, including data from Hong Kong, Macau and Taiwan and deals that have been announced but not yet completed, data was downloaded on 8 October 2021; EY analysis

Figure 3: Top five sectors in the announced China overseas M&As in the first three quarters of 2021

*Note: The TMT sector refers to technology, media & entertainment and telecommunications

Sources: ThomsonOne; Mergermarket, including data from Hong Kong, Macau and Taiwan and deals that have been announced but not yet completed, data was downloaded on 8 October 2021; EY analysis

  • Sector analysis

    • By deal value, the top three sectors were TMT, financial services and consumer products, accounting for 65% of the overall. The announced M&A value of health care & life sciences increased nearly two times and the sector’s announced M&A value in the first three quarters of 2021 exceeded the combined full-year value total of the same sector of 2019 and 2020. With the advent of the pandemic, public awareness of health enhanced; people have shown a more robust appetite for health care services and products in addition to smart health-enabled services. The prospect for health care & life sciences is positive.
    • By deal volume, the top three sectors were TMT, health care & life sciences and financial services, accounting for 62% of the overall. The overall deal volume in the period decreased by 3% YOY. The deal volume of health care & life sciences markedly increased by 80% to 74 in the period, reaching an all-time high for the same period.
  • Geographical analysis

    • Asia was the top investment destination with an announced deal value at US$21 billion, representing 45% of the overall in the period, up 83% YOY, mainly in financial services, TMT and advanced manufacturing and mobility. Asia was also the only continent to make a higher record in the M&A value in the first three quarters of 2021, compared to the same period of 2019. Half of the top 10 destinations for China overseas M&As were situated in Asia, namely Singapore, South Korea, Indonesia, India and Japan. The largest deal in the period was the acquisition of a leading Singapore-based real estate investment management company in the Asia Pacific region by a leading Hong Kong-based integrated logistics real estate platform for strengthening its position as a real estate platform in Asia’s new economy of logistics, data centers, etc. In addition, Chinese enterprises have got more interested in investing in South Korea these years and the country made the first entry into the top 10 China overseas M&A destination list in 2020. In the first three quarters of 2021, South Korea ranked the fourth top destination in the China overseas M&A value, mainly in the sectors of TMT (including software, semiconductor manufacturing, etc) and health care & life sciences. Moreover, the RCEP agreement will enter into force on 1 January 2022 . Benefitted by the potentials brought with the RCEP, Asia is expected to maintain its attractiveness to Chinese investors in the coming years.
    • The announced China M&A value in Europe reached US$14.9 billion, up 170% YOY, primarily attributed by a lower base number in 2020; the value was less than a fifth of the historical peak of the same period. The investments mainly went to consumer products, TMT and health care & life sciences. Notably, following the agreement made between the UK and EU on cooperating in trade among other matters by the end of 2020, the interest of China M&As in the UK returned. In the first three quarters of 2021, the deal volume in the UK increased more than two times, representing almost 30% of the total in Europe. The investments mainly went to TMT.
    • The announced China overseas M&A value in North America was US$6.7 billion, down 10% YOY, making it the only continent recording a YOY drop in the deal value in the period. The US yet remained the second top destination in the overall value. On the contrary, the deal volume in the US increased 31% YOY in the first three quarters of 2021, driven mainly by the deals taken place in the health care & life sciences and TMT sectors. Among such, the deal volume in the health care & life sciences sector more than doubled YOY (the increase was over 2 times compared to the same period of 2019), representing 47% of the overall volume in the period, mainly in the R&D and manufacture of biopharmaceutical products. The deal volume in the US in TMT increased 33% YOY, representing 26% of the overall volume in the period, mainly in the software publishing, data services, etc. It showed that the US technological strengths in the health care & life sciences and TMT sectors were still attractive to Chinese enterprises and investment in the non-sensitive areas of these sectors is expected to continue.

Figure 4: Deal value and volume of China overseas M&As by continent in the first three quarters of 2021 (deal value in US$ billion) 

Sources: ThomsonOne; Mergermarket, including data from Hong Kong, Macau and Taiwan and deals that have been announced but not yet completed, downloaded on 8 October 2021; EY analysis 

Figure 5: Top 10 destinations of China overseas M&As in the first three quarters of 2021 (by deal value: US$ billion)

Sources: ThomsonOne; Mergermarket, including data from Hong Kong, Macau and Taiwan and deals that have been announced but not yet completed, downloaded on 8 October 2021; EY analysis 

Figure 6: Top 10 destinations of China overseas M&As in the first three quarters of 2021 (by deal volume)

Sources: ThomsonOne; Mergermarket, including data from Hong Kong, Macau and Taiwan and deals that have been announced but not yet completed, downloaded on 8 October 2021; EY analysis 

China overseas EPC contracts focused on transportation and general construction

The newly-signed China overseas EPC projects increased 6.2% YOY to US$159.6 billion in the first three quarters of 2021. The overseas EPC turnover was US$107.4 billion, up 17.7% YOY. More newly-signed overseas EPC contracts were signed. The number of new projects each value exceeding US$50 million increased by 10.8% YOY to 574, mainly in transportation and general construction.

In the B&R countries and regions, the value of newly-signed EPC contracts reached US$80.8 billion, down 3.5% YOY. The overseas EPC turnover in the B&R countries and regions was US$61.8 billion, up 16.3% YOY. Chinese enterprises are intensifying their participation in energy transformation projects in the Middle East. Key projects signed in the period included the building of a total of 2GW photovoltaic power capacity in Iraq as well as the provision of equipment related to a total of 2.1GW photovoltaic power capacity to the UAE⁵.

China announced in September 2021 to step up support for other developing countries in developing green and low-carbon energy and China will not build new coal-fired power projects abroad. It is expected that most of the world will more proactively promote energy transition and transformation and this will set to reshape the future sector landscape of oil & gas, electricity & coal mining, etc.

Figure 7: Value of newly-signed China overseas EPC contracts (US$ billion) 

Sources: China MOFCOM

  • Show article references#Hide article references

    1. Source: World Economic Outlook, October 2021, International Monetary Fund (IMF)
    2. Source: Ministry of Commerce of China (China MOFCOM)
    3. Sources: ThomsonOne; Mergermarket, including data from Hong Kong, Macau and Taiwan and deals that have been announced but not yet completed, data was downloaded on 8 October 2021; EY analysis
    4. Source: China MOFCOM, as of 3 November 2021, six ASEAN member states namely Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, in addition to China, Japan, New Zealand and Australia had deposited instruments of ratification, meeting the requirement to effect 
    5. Source: International Energy Website (www.in-en.com)

Summary

China’s overall ODI maintained its steady development in the first three quarters of 2021 with a YOY increase of 6.3% to US$107.1 billion. The announced China overseas M&A value reached US$46.3 billion, up 79% YOY. Asia was the top overseas M&A destination representing 45% of the overall in the period. Quality development in overseas M&As was on track and strong participation of private equities and investment companies was observed.

About this article

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.