- During the first three quarters of 2020, China’s overall outward direct investment (ODI) amounted to US$100.7billion, up 4.1% year-on-year (YOY), and non-financial ODI amounted to US$78.9 billion, down 2.6% YOY; Belt and Road (B&R) non-financial ODI grew 29.7% against the downward trend, representing 16.5% of the total, 4.1 percentage points higher compared to the previous corresponding period
- The announced value of China overseas mergers and acquisitions (M&As) totaled US$24.4 billion, down 50.6% YOY, which was the lowest value in the same period over the past 10 years; 371 deals were announced, down 21.1% YOY
- TMT* was the most favored sector. Other key sectors included consumer products and financial services. The M&A value of the top three sectors accounted for 63.3% of the total and that of health care and life sciences increased 90.8% amid the downward market
- Asia was the most popular destination for China overseas M&As, taking up 40% of the total announced M&As by value. China overseas M&As in North America increased 6.7% YOY, which was the only continent that recorded growth during the same period despite of recent geopolitical tensions
- Overseas engineering, procurement and construction (EPC) continued to develop steadily. The total value of newly-signed EPC contracts increased 2.4% YOY to US$150.2 billion and more larger projects were signed during the period. The EPC turnover was US$91.3 billion, down 10.6% YOY
EY today releases the Overview of China outbound investment in the first three quarters of 2020. During this period, the overall ODI of China remained steady with a slight increase of 4.1%, despite the impacts of the COVID-19 pandemic and recent geopolitical tensions. China overseas M&A kept its downward trend and the announced deal value decreased 50.6%. Asia was the most popular destination, taking up 40% of the total by value. North America was the only continent that recorded growth during the same period though geopolitical tensions may not fade in the short run. TMT, consumer products and financial services were the top three sectors where Chinese investors looked for M&A abroad.
Loletta Chow, Global Leader of EY China Overseas Investment Network (COIN), says: “Economic globalization will evolve in the current global recession where multiple political and economic risks remain noticeable in the short run. During the fifth plenary session of 19th Central Committee of the Communist Party of China, it was pointed out that China would continue promoting high-quality development of the Belt and Road Initiative and actively participating in the reform of the global economic governance framework, so as to create new ways for high-level international cooperation and to improve competitiveness. Under the new, dual development pattern of China featuring domestic and international dual circulation, the ‘going abroad’ approach will stand as a trend for Chinese enterprises to grow further by effectively investing in segments and industries closely linking with Chinese domestic real economic development.”
Marked ODI growth in certain segments and B&R investment grew steadily amid the downward trend
Data of the Ministry of Commerce (MOFCOM) showed that, during the first three quarters of 2020, China’s overall ODI amounted to US$100.7billion, up 4.1% YOY, and non-financial ODI amounted to US$78.9 billion, down 2.6% YOY. The investments mainly went to leasing & business services, manufacturing, wholesale & retail sectors; among which, the investments to leasing & business services and wholesale & retail were up 18.6% and 41.1% respectively amid the downward trend. B&R non-financial ODI reached US$13 billion, up 29.7% YOY, representing 16.5% of the total and 4.1 percentage points higher than that of the corresponding period last year.
China overseas M&As dropped substantially by value; health care and life sciences sector grew amid the downward market
During the first three quarters of 2020, the total announced value of China overseas M&As reached US$24.4 billion, down 50.6% YOY. There were 371 deals, down 21.1% YOY. The market carried on a wait-and-see mood as the economic landscape has notably changed and China overseas M&A activities continued to slow down.
- By deal value, TMT, consumer products and financial services were the top three sectors, representing 63.3% of the total. Except for health care and life sciences sector, the M&A activities of all other sectors dropped during the first three quarters of 2020. Announced deals of health care and life sciences reached US$1.4 billion, up 90.8%. Majority of which were from the bioscience and health care equipment field, but due to the pandemic, numerous countries have enhanced scrutiny of foreign investment in the health care and life sciences sector.
- By deal volume, TMT, financial services, and advanced manufacturing & mobility were the top three sectors, representing 53.1% of the total. Only in the financial services sector we saw an increase in deal volume, up 55.3%, and the volume of all other sectors decreased.
- Technological innovation and development acted as a major force to drive the post-pandemic economy. People are adopting technologies in new scenarios and wider scope. Further integration of digital technologies and the real economy will be the future focus, in areas such as advanced manufacturing and app/software development, which are less sensitive and promising for investment in the light of digitalization. They could be the hot spots for China outbound investors in the future.
- Asia was the top destination for Chinese enterprises in the first three quarters of 2O2O and the announced value of overseas M&As reached US$10.3 billion, down 33.5% YOY. Key sectors were consumer products, TMT and financial services. Most favored destinations included Saudi Arabia, Singapore and South Korea. The B&R countries and regions are expected to remain attractive for Chinese investors. Such investments have been going on steadily and some of these areas may have the opportunity to become regional blocs of the supply chain in the future.
- The announced value of China overseas M&As in North America was US$8.4 billion, up 6.7% YOY, which was the only continent that recorded growth. Key sectors were TMT, financial services and consumer products. In the short run, both the Sino-US trade relations and future US policies toward China are uncertain, thus Chinese enterprises need to be cautious and learn how to navigate ongoing geopolitical risks. Chinese investors can keep an eye on less sensitive targets closely linking with opportunities of future transformation and upgrade of the Chinese industries, such as hardware equipment, software development, medical equipment, advanced manufacturing, etc.
- The announced value of China overseas M&As in Europe was US$4.2 billion, down 74.8% YOY, representing an even smaller portion at 17.3% of the total. Key sectors were TMT, power & utilities and advanced manufacturing & mobility. More investments were recorded in countries like the Netherlands, Italy, Spain, etc. Impacted by the pandemic, GDPs of the Euro zone and the UK were expected to decrease by more than 8% this year. Chinese investors need to evaluate more carefully about regional investment environments and potentials when investing in Europe. The year 2020 also marks the 45th anniversary of diplomatic relations between China and the European Union. Though Chinese investment activities toward Europe have been less active, the two sides are intensifying efforts to conclude the Sino-EU agreement on investment by this year as a positive step toward strengthening the Sino-EU open trade and investment environment.
China overseas EPC contracts made steady progress, with an increase in the number of newly-signed large projects
Data from the MOFCOM showed that the total value of newly-signed China overseas EPC contracts increased by 2.4% YOY to US$150.2 billion during the first three quarters of 2020. Among which, 301 projects were each worth over US$100 million, an increase of 10 projects over the corresponding period of the previous year. For instance, China and Pakistan signed a railway upgrade project agreement at an estimated investment value of US$6.8 billion in July 2020. It is the biggest Chinese investment by value in Pakistan in the field of transport infrastructure. The total EPC turnover was US$91.3 billion in the first three quarters of 2020, down 10.6% YOY. In B&R countries and regions, the value of newly-signed EPC contracts reached US$83.7 billion, down 3.6% YOY, representing 55.7% of the total. The EPC turnover in B&R countries was US$53.1 billion, down 4.9% YOY, representing 58.2% of the total.
Despite recent external challenges, Chinese engineering enterprises are thriving internationally. With reference to the Top 250 International Contractors released by the Engineering News-Record in August 2020, China has topped the list in terms of the number of companies for years, and six Chinese enterprises ranked among top 20. Against the backdrop of unclear pandemic outlook and rising geopolitical tensions, Chinese enterprises should watch out for policy and market changes overseas, timely adjust the international business strategy, leverage their high construction efficiency and cost advantages, and seek to advance technology, operation and management capabilities for a brighter future.
Notes to Editors
The China Overseas Investment Network (COIN) connects EY professionals around the globe, facilitates collaboration and provides consistent and coordinated services to our Chinese clients to make outbound investments. Building on the existing China Business Group in the Americas, EMEIA, and Asia-Pacific areas, COIN has expanded our network to over 70 countries and territories around the world. COIN is part of EY’s commitment to provide seamless and high-quality client services, worldwide, to Chinese companies going overseas and doing business overseas. Our globally integrated structure enables us to deploy dedicated teams with strong local experience and deep industry knowledge to provide seamless services to our clients.
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This press release has been issued by Ernst & Young, China, a part of the Ernst & Young global organization.