Press release

30 Jul 2020 Beijing

The impact of geopolitical risk stands out, while M&As in Asia accounted for nearly 50% of the total — EY releases the Overview of China outbound investment in H1 2020

BEIJING, 30 JULY 2020. EY releases the Overview of China Outbound Investment in H1 2020, China’s overall ODI and the announced China overseas M&As fell by 4.4% YOY and 40% YOY, respectively.

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  • China’s overall outward direct investment (ODI) amounted to US$54.9 billion, down 4.4% year-on-year (YOY), and non-financial ODI amounted to US$51.5 billion, down 4.3% YOY; Belt and Road (B&R) non-financial ODI grew 19.4% against the downward trend, with ASEAN countries seeing strong growth, up 53.1% YOY.
  • The announced value of China overseas mergers and acquisitions (M&As) totaled US$14.6 billion, down 40% YOY, the lowest value in the same period over the past 10 years, the decline in Q2 was slowed down sharply comparing to Q1; 248 deals were announced, down 17% YOY.
  • Consumer sector was the most favored, with M&A value increasing by 26% against the downward trend, accounting for 26% of the total. Other key sectors include TMT* and financial services. Deal volume in financial services sector doubled YOY, among which 40% of the deals were in Asia.
  • Asia was the most popular destination for China overseas M&As, with the announced value of M&As accounted for nearly 50% of the total. Saudi Arabia, Singapore and South Korea were the most favored countries. China overseas M&As in Europe continue to decline sharply, accounting for less than 20% of the total for the first time in the past seven years.
  • Overseas engineering, procurement and construction (EPC) continue to develop steadily. The total value of newly-signed EPC contracts increased by 1.2% YOY to US$107.2 billion, with a number of big projects signed; EPC turnover was US$60.6 billion, down 13.8% YOY.

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

EY released the Overview of China Outbound Investment in H1 2020, according to which, China outbound investment continued to decline due to the continuous impact of the COVID-19 pandemic. China’s overall ODI and the announced China overseas M&As fell by 4.4% YOY and 40% YOY, respectively. Among them, the announced China overseas M&As hit the lowest value in the same period over the past 10 years. Asia was the most popular destination for Chinese enterprises, with announced deal value accounting for nearly 50% of the total. Saudi Arabia, Singapore and South Korea are the most favored countries. Consumer, TMT and financial services sectors were the most popular for Chinese enterprises.

Loletta Chow, Global Leader of EY China Overseas Investment Network (COIN), says: “Affected by the continuous spread of COVID-19 globally, China outbound investment dropped sharply in H1 2020. Apart from business travel restrictions and the large uncertainties facing by the business valuation of target projects, geopolitical risks in some countries have also increased significantly, which affected the appetite of Chinese enterprises to invest overseas and make them more cautious in the decision-making process. Looking ahead to the second half of the year, the control of the pandemic and R&D progress of vaccines will be the key factors affecting investment activities. In the new normal, pandemic prevention and control measures will also be incorporated into a company’s daily operation and considerations when investing overseas in the future. We recommend that Chinese enterprises include geopolitical risk in their routine risk management framework, pay close attention to the changes of foreign investment policies in overseas countries, and focus more on Asian and Latin American countries, that have closer relations with China. In addition, Chinese enterprises should seize the development opportunities brought by digital technological revolution and the reshaping of global supply chains to accelerate companies’ transformation and optimize international strategies.”

China’s ODI structure remained diversified, and B&R investment grew against the downward trend

According to the Ministry of Commerce (MOFCOM), in H1 2020, China’s overall ODI amounted to US$54.9 billion, down 4.4% YOY; non-financial ODI was US$51.5 billion, down 4.3% YOY, and mainly invested in leasing & business services, manufacturing, wholesale & retail and mining sectors. B&R non-financial ODI reached US$ 8.1 billion, up 19.4% YOY against the downward trend, accounting for 15.8% of the total, 3.2 percentage points higher than that of last year. In particular, investment into ASEAN countries saw strong growth to US$6.2 billion, up 53.1% YOY. The pandemic has aggravated concerns on the concentration and flexibility of global supply chains. It is expected that global supply chains will face reshaping in the future. The geographical advantages of ASEAN countries, coupling with its economic development potential will further attract Chinese enterprises to invest in the region.

The announced value of China overseas M&As declined substantially, the consumer sector is the most favored

In H1 2020, 248 China overseas M&A deals were announced, down 17% YOY, with a total value of US$14.6 billion, down 40% YOY, the lowest value of the same period over the past 10 years. Nevertheless, the decline in Q2 was slowed down sharply comparing to Q1.

Sector analysis

  • By deal value, consumer, TMT and financial services were the top three sectors, accounting for 66% of the total. The consumer sector was the most favored, recorded an increase of 26% against the downward trend, accounting for 26% of the total. The increase was mainly due to an acquisition of an instant noodle producer in Saudi Arabia. The acquired company has business presence in Africa, the Middle East and Southeast Europe. It also reflects that a foothold in Asia and the surrounding areas are important for Chinese companies’ overseas investment in the future. The announced value of M&As of all other major sectors dropped significantly.
  • By deal volume, TMT, financial services, and advanced manufacturing & mobility were the top three sectors, accounting for 54% of the total. Deal volume in the financial services sector doubled YOY, among which 40% of the deals were in Asia.
  • At present, the prevention and control of the pandemic has become the new normal in most countries, which also accelerates the integration of digital technologies and the real economy. It is expected that high-tech industries and digital-driven products and services will continue to be popular among Chinese investors.

Geographical analysis

  • Asia was the most popular destination for Chinese enterprises in H1 2O2O, the announced value of M&As in the continent was US$7.1 billion, down 31 % YOY. Key sectors were consumer, TMT and health & life sciences. Half of the top 10 countries for China overseas M&As were from Asia, among which Saudi Arabia, Singapore and South Korea were most popular. For Chinese enterprises, countries in Asia, especially ASEAN, have apparent geographical advantages and share similar cultural background, plus the promotion of the Belt and Road Initiative, it is expected that Asia will remain Chinese enterprises’ favored investment destination.
  • The announced value of China overseas M&As in North America was US$4.2 billion, up 15% YOY, the only continent that recorded a growth. Key sectors were financial services, TMT and mining & metals. The US ranked first by value of Chinese overseas M&As among all countries. It was mainly due to a mega deal in FinTech and payment fields. In the second half of the year, geopolitical risk is still deemed relatively high due to the upcoming US presidential election. Thus, Chinese enterprises will remain cautious in investing in the US in short term.
  • The announced value of China overseas M&As in Europe was US$2.5 billion, down 65% YOY, key sectors were TMT, power & utilities and consumer. The proportion of China overseas M&As in Europe has been declining. In H1 2020, it fell below 20% for the first time in the past seven years. In H1 2020, China’s M&As in the UK recorded the largest decline in Europe, with the deal value and deal volume falling by 99% and 80% respectively. The future direction of Sino-British relations will continue to be an important factor influencing Chinese companies’ investment in the UK. However, Chinese companies’ investments in the Netherlands, Italy, France and Luxembourg had significant YOY growth in H1 2020.

China overseas EPC contracts made steady progress, with an increase in the number of newly-signed large projects

According to the MOFCOM, the total value of newly-signed China overseas EPC contracts increased by 1.2% YOY to US$107.2 billion in H1 2020, among which 222 big projects were over US$100 million, an increase of five projects over the previous year. For example, China and Pakistan signed two hydro-power generation projects with a total estimated value of US$3.9 billion in June.  EPC turnover was US$60.6 billion, down 13.8% YOY. In B&R countries, the value of newly-signed EPC contracts amounted to US$60.3 billion, down 5.2% YOY; while the EPC turnover was US$35.6 billion, down 7.8% YOY. Currently the situation of the pandemic is still severe, however, compared with the general difficulties faced by other industries, the progress of China overseas EPC is still relatively stable. Chinese companies are recommended to pay close attention to the policy changes in all relevant countries, improve contingency plans, strengthen positive communication with local governments, suppliers, financial institutions and other related counterparties, optimize project personnel composition, expand supply chain channels, so as to improve the risk control mechanism. 

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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.

This news release has been issued by Ernst & Young, China, a part of the global EY organization.