Overview of China outbound investment in 2019

• China’s overall outward direct investment (ODI) amounted to US$117.1 billion, down 9.8% year-on-year (YOY); non-financial ODI was US$110.6 billion, down 8.2% YOY. With more balanced investment structure, investments mainly went to leasing and business service, manufacturing, wholesale and retail sectors
• The announced value of China overseas mergers and acquisitions (M&As) reached US$68.6 billion, down 31% YOY; 591 deals were announced, down 23.5% YOY. The YOY decrease in the M&A deal value and volume in Q3 and Q4 narrowed significantly
• By deal value, the M&A activities were dominated by technology, media and telecommunication (TMT), consumer products, and power and utilities sectors. By deal volume, the top three sectors were TMT, advanced manufacturing and mobility and consumer products
• Asia was the most popular overseas M&A destination for Chinese enterprises, with the announced M&A deal value accounted for over 30% of the total. Except for Asia (up 19.1% YOY) and Africa (up 26.1% YOY), China overseas M&As in other continents declined in varying degrees, especially in Europe (down nearly 60% YOY) and North America (down nearly 30% YOY), hitting new lows since 2014 and 2012
• The total value of newly-signed China overseas engineering, procurement and construction (EPC) contracts increased by 7.6% YOY to US$260.3 billion, EPC turnover was US$172.9 billion, up 2.3% YOY; while the value of EPC contracts signed in Belt and Road (B&R) countries amounted to US$154.9 billion, accounting for 59.5% of the total, up 23.1% YOY

EY released the Overview of 2019 China Outbound Investment, according to which, China outbound investment in 2019 continued to decline.

China’s overall ODI and the announced China overseas M&As fell by 9.8% YOY and 31% YOY, respectively. Driven by the Belt and Road Initiative (BRI), Asia became the most popular overseas M&A destination for Chinese enterprises, recording growth despite the overall downward trend. Overseas TMT, consumer products and power and utilities sectors continued to be favored by Chinese enterprises. China overseas EPC contracts continued to develop steadily, with a YOY increase of 7.6% in 2019.

Loletta Chow, Global Leader of EY China Overseas Investment Network, says, “The increase in trade barriers and geopolitical uncertainty in 2019 affect global business confidence and economic activities. In early 2020, overseas uncertainties were reduced with the signing of phase-one trade deal between the US and China as well as the success of Brexit. However, affected by the novel coronavirus, the China outbound investment trend would need to be further observed depending on the control of the epidemic situation in the later year. Chinese investors could plan for now for later actions - paying attention to sectors that support structural adjustment, transformation and upgrading, such as TMT, health & life sciences and advanced manufacturing sectors.”

China’s ODI development remained healthy and steady, manufacturing, wholesale and retail sectors saw increases despite the overall downward trend

In 2019, China’s ODI continued to develop in a healthy and steady manner. According to the MOFCOM, China’s overall ODI amounted to US$117.1 billion, down 9.8% YOY; non-financial ODI was US$110.6 billion, down 8.2% YOY. With more balanced investment structure, the total ODI went to leasing and commercial services, manufacturing, wholesale and retail sectors.

China overseas M&As focus on high-end value chain while Asia became the No.1 destination for overseas M&As

In 2019, China overseas M&As remained prudent, 591 deals were announced, down 23.5% YOY, with a total value of US$68.6 billion, down 31% YOY. But in Q3 and Q4, overseas M&As rebounded owing to increasing enthusiasm from Chinese enterprises, the declines in both deal value and volume narrowed sharply. In H2 2019, the announced value of overseas M&As by Chinese enterprises fell by only 2.8% YOY (down 55.9% YOY in H1 2019).

Sector analysis:

• By deal value, China overseas M&As were dominated by TMT (US$15.1 billion), consumer products (US$13.1 billion) and power and utilities (US$9.5 billion) sectors, accounting for 54.8% of the total. Amid the downward trend, the power and utilities sector achieved an increase of 121.8% YOY, which was driven by two mega deals by Chinese enterprises in Peru and Chile, reflecting the increasing presence of Chinese enterprises in Latin America. Financial services sector (mainly in the wealth and asset management sector, accounting for nearly 60% of the total) increased 50% YOY, and more than 50% of the investment was in Asia.
• By deal volume, TMT (122), advanced manufacturing and mobility (104), and consumer products (78) were the top sectors among Chinese investors, accounting for 51.4% of the total.

Geographical analysis:

• Asia emerged as China's No.1 overseas M&A destination, accounting for nearly 30% of the total investment. In the meantime, with a sharp decline in overall M&A value, Asia ($22.3 billion, up 19.1% YOY) continued to grow against the downward trend, key sectors were TMT, financial services and real estate, hospitality and construction
• The announced overseas M&As in Europe decreased significantly by 57.1% YOY to US$20.5 billion. It was the third consecutive year of decline and the lowest since 2014. Investments were mainly concentrated in sectors such as consumer products, TMT and financial services. The main investment destinations were the UK, Switzerland and Germany. In the meantime, the UK has confirmed to leave the European Union on 31 January 2020, further reducing uncertainties for Chinese investment in Europe
• China overseas M&As in North America continued to be affected by geopolitical risks and FDI policy resistance. In 2019, the announced value of China overseas M&As in North America were US$13.5 billion, down nearly 30% YOY, the lowest since 2012. Key sectors were TMT (mainly in media and entertainment sector, accounting for over 60% of the total), mining and metals and consumer products. However, with the easing China-US relations, Chinese enterprises' investment in North America picked up in Q4, which rose 41% quarter-on-quarter, bringing the US back to the top destination of China overseas M&As for the year

Overseas EPC projects drove local development, achieving mutual benefit and a win-win situation

According to the MOFCOM, in 2019, the total value of newly-signed China overseas EPC contracts increased by 7.6% YOY to US$260.3 billion, EPC turnover was US$172.9 billion, up 2.3% YOY; while the value of EPC contracts signed in B&R countries amounted to US$154.9 billion, accounting for 59.5% of the total, up 23.1% YOY. Moreover, among the EPC contracted by Chinese enterprises, there were 506 projects with contract value over US$100 million, up 8.4% YOY. China overseas EPC enterprises has created nearly 800,000 jobs for the host countries, driving China's equipment and materials exports to exceed US$ 14 billion.

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Notes to Editors

About EY COIN

The China Overseas Investment Network (COIN) links EY professionals around the globe, facilitates collaboration, and provides consistent and coordinated services to our clients with overseas investment from China. Building on the existing China Business Group in the Americas, EMEIA, Asia-Pacific and Japan areas, COIN has expanded our network in more than 70 countries and territories around the world. Our globally integrated structure enables us to deploy dedicated teams with strong local experience, and profound industry knowledge to provide our clients with one-stop professional service from planning stage to execution stage to integration stage, helping our clients navigate through global markets.