- China’s overall outward direct investment (ODI) reached US$31.8 billion in the first quarter of 2021, up 12.6% compared to Q1 2020, and non-financial ODI reached US$24.8 billion, up 2.4% year-on-year (YOY). Belt and Road (B&R) non-financial ODI reached US$4.4 billion, up 5.2% YOY, representing 17.8% of the total
- The announced value of China overseas mergers and acquisitions (M&As) reached US$17.2 billion, which was a marked increase of 135% compared to Q1 2020. There were 120 announced deals and the volume was similar YOY
- By deal value, TMT* was the most favored sector in China overseas M&As. Other key sectors included consumer products as well as advanced manufacturing & mobility. The M&A value of the top three sectors accounted for 76% of the total. By deal volume, the announced transaction volume was similar YOY. There was an increase in the large project volume with each of the 26 new acquisitions valued over US$100 million, more than doubled of that of Q1 2020
- China overseas M&As recorded growth by value in all major continents. About 45% of the total by value took place in Europe, up 268% YOY, and it was the most popular destination during the period
- China overseas engineering, procurement and construction (EPC) projects developed steadily. The total value of newly-signed EPC contracts reached US$53.6 billion, down 3.3% YOY and these contracts were mainly infrastructure. The EPC turnover was US$30.1 billion, up 7.6% YOY
*Note: TMT sector refers to technology, media & entertainment and telecommunications
EY today releases the Overview of China outbound investment of Q1 2021. China’s overall ODI registered a positive start in 2021 with a YOY increase of 12.6%. The announced value of China overseas M&As reached US$17.2 billion, up 135% YOY. Europe was China’s top overseas M&A destination in Q1 2021, accounting for 45% of the total deals by value during the period. TMT, consumer products as well as advanced manufacturing & mobility were the top three sectors.
Loletta Chow, Global Leader of EY China Overseas Investment Network (COIN), says: “China’s economy recovered strongly with a GDP growth of 18.3% YOY in Q1 2021. The increased demand for corporate transformation and upgrade following a steady recovery of profits have promoted development of China economic external circulation and China overseas M&As have more than doubled. The uneven global economic growths and stringent overseas foreign direct investment scrutiny of developed countries have become new normal. The complex and dynamic geopolitical external environments can pose challenges to China overseas investments and operations. However, new investment opportunities are emerging. The world has put more emphasis for green and sustainable development. More countries have announced their carbon neutral targets and China is committed to achieving carbon neutrality by 2060. More new energy opportunities may emerge and Chinese new energy enterprises could get hold of the vital opportunity for their internationalization. Chinese enterprises – including those in the new energy automotive industrial chain and renewables enterprises – can actively participate in the related industrial and supply chains in the broad overseas markets and this would contribute to the going abroad of the equipment and standards. On the other hand, China’s commitment to carbon neutrality will further boost the transformation and upgrade of Chinese enterprises, which could seek for quality overseas investment opportunities. This could also accelerate the alignment of Chinese technologies internationally and benefit China’s international position in the future green economy.”
China’s ODI in manufacturing and information transmission rose more quickly and the B&R investment grew steadily
Data of the Ministry of Commerce (MOFCOM) showed that China’s overall ODI reached US$31.8 billion in Q1 2021, up 12.6% YOY, and non-financial ODI reached US$24.8 billion, up 2.4% YOY. Investments in manufacturing and information transmission areas rose more quickly. The investment in manufacturing increased 17.8% to US$3.8 billion while that in information transmission increased 20.9% to US$1.6 billion. The B&R non-financial ODI reached US$4.4 billion, up 5.2% YOY, representing 17.8% of the total non-financial ODI.
China overseas M&As increased markedly and deals in Europe more than tripled by value
In Q1 2021, the announced value of China overseas M&As reached US$17.2 billion, up 135% YOY. There were 120 announced deals and the volume was similar YOY. Benefited by favorable factors including vaccination and the economic growth in the country, China overseas M&As have rebounded since Q4 2020. The value of China overseas M&As in Q1 2021 more than doubled YOY and the interest of its enterprises in overseas markets has gradually picked up.
- Sector analysis
- By deal value, TMT, consumer products and advanced manufacturing & mobility were the top three sectors. Among which, TMT made up 34% of the total, mainly in the lower-sensitive areas of hardware manufacturing, software development, IT services, etc. About 60% of these TMT M&As took place in Asia. Announced consumer products deals reached US$4.6 billion, primarily attributed by the acquisition of the well-known Dutch branded home appliance business by a Chinese investment group, which would help the acquired target venture into new markets for international growth. The emphasis for green and sustainable development has become stronger in recent years and more new energy opportunity might emerge. Chinese enterprises might keep an eye on relevant investment policies and opportunities.
By deal volume, TMT, advanced manufacturing & mobility and health & life sciences were the top three sectors, representing 60% of the total. The total deal volume was similar YOY. The large project volume more than doubled, with each of the 26 new acquisitions valued over US$100 million.
- Geographical analysis
- Europe was China’s top overseas M&A destination in Q1 2021 with US$7.7 billion and a 268% increase YOY by value. It represented 45% of the total China overseas M&As during the period. The deals are mainly in consumer products, TMT and health & life sciences sectors, and deals in the Netherlands, the UK and Spain increased markedly. In addition, the China-EU Agreement on Geographical Indications effective since 1 March 2021 would facilitate trades of Chinese geographical indication (GI) protected exports to the EU market and increase the awareness of these Chinese products. The agreement can increase the investment attractiveness of related GI products protected in the EU, which is expected to drive Chinese investment in EU-related consumer products and tourism as well as promote quality development of consumer products in the two markets.
- The announced value of China overseas M&As in Asia was US$6.8 billion, up 74% YOY. Key sectors were TMT, advanced manufacturing & mobility and financial services whereas Indonesia, South Korea and Japan were popular destinations. The China overseas M&As in both TMT and advanced manufacturing & mobility recorded a marked increase and the announced deals in Q1 2021 exceeded the total China overseas M&As of the respective sectors in the full year of 2020. About 57% of the China overseas M&As in Asia’s TMT sector took place in South Korea, mainly in design and manufacturing of the semiconductor products and software services. In the advanced manufacturing & mobility sector, a major transaction was related to a joint investment in an Indonesian logistics start-up by several Chinese investment firms. In the post-COVID era, the rapid development of e-commerce has also greatly promoted the logistics development. In addition, China, Singapore, Thailand and Japan have completed the ratification of the Regional Comprehensive Economic Partnership (RCEP) and other signatory countries are also working on domestic ratification of the agreement toward its commencement on 1 January 2022. The impact of the RCEP is expected to be positive to economic and trade cooperation between China and ASEAN as well as to economic integration in the region and the B&R quality development in the longer run.
- The announced value of China overseas M&As in North America was US$1.8 billion, up 65% YOY. Key sectors were TMT, advanced manufacturing & mobility as well as oil & gas. A major acquisition was related to the oil and gas assets acquired in Texas, the US, marking the biggest deal made in the North American oil and gas sector by Chinese investors in the past three years. Numerous challenges have been observed in the Sino-US relations since the beginning of 2021. Despite the rebound of Chinese investment in the US, uncertainty remains in view of enhanced investment scrutiny and elevated geopolitical risks and Chinese investors may remain prudent and cautious in their investment decisions.
China overseas EPC contracts made steady progress with newly-signed large projects focusing on infrastructure
The total value of China newly-signed overseas EPC contracts decreased 3.3% YOY to US$53.6 billion in Q1 2021. The total China overseas EPC turnover was US$30.1 billion, up 7.6% YOY. With the newly-signed large projects focused on infrastructure, the newly-signed infrastructure projects by Chinese enterprises reached US$41.2 billion and the infrastructure EPC turnover reached US$24.6 billion in Q1, accounting for 77% and 81.6% of the total respectively. In B&R countries and regions, the value of newly-signed EPC contracts reached US$31.3 billion, up 19.4% YOY. The EPC turnover in B&R countries and regions was US$17.8 billion, up 12.4% YOY. Both the newly-signed EPC contracts and the EPC turnover in B&R countries and regions accounted for a larger percentage of the total compared to the same period in 2020.
-Ends-
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About COIN
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 the EY 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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