EY releases the Overview of China outbound investment of Q1 2022

• China overall outward direct investment (ODI) reached US$34.3 billion in the first quarter of 2022, up 7.9% year-on-year (YOY), while non-financial ODI reached US$26.9 billion, up 8.5% YOY. The Belt and Road (B&R) non-financial ODI increased 19% YOY, which continued to outperform the overall growth rate.
• The announced value of China overseas mergers and acquisitions (M&As) reached US$5.9 billion, down 65% YOY, marking the lowest in a single quarter on record. There were 107 announced deals, down 25% YOY. 
  • By deal value, the top three sectors were TMT*, health care & life sciences, and financial services, accounting for 71% of the total. The health care & life sciences sector was the only sector recording an increase in deal value during the period. By deal volume, the top three sectors were TMT, advanced manufacturing & mobility, and health care & life sciences, accounting for 55% of the total.
  • Europe was the top overseas M&A destination during the period, recording the highest deal value and volume among all major continents at over US$2.13 billion and 43 deals. It was closely followed by Asia with an announced value at US$2.11 billion. By deal value, the top five most popular investment destinations were the United States (US), India, Germany, Italy and Singapore.
• Newly-signed China overseas engineering, procurement and construction (EPC) projects decreased 11.5% YOY to US$47.4 billion.

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

EY today releases the Overview of China outbound investment of Q1 2022. China overall ODI in the first quarter of 2022 increased 7.9% to US$34.3 billion¹, with rapid growth in wholesale and retail, and manufacturing. The announced China overseas M&A value reached US$5.9 billion, down 65% YOY. Europe and Asia were the more popular destinations for China overseas M&As, accounting for more than 70% of the total. TMT, advanced manufacturing & mobility, as well as health care & life sciences were the top sectors².

Loletta Chow, Global Leader of EY China Overseas Investment Network (COIN), says: “Rising global geopolitical risks as well as higher inflation rates in Europe and the US were observed during the first quarter of 2022, both at their peaks in almost three decades³. The International Monetary Fund (IMF) recently lowered the 2022 global growth forecasts from 4.4% to 3.6%⁴ as the global economic momentum is expected to decelerate substantially. China GDP growth was generally stable in Q1, up 4.8% YOY. Yet, the evolving pandemic situation might further impact enterprise operations. To sum up, the momentum of China overseas M&As might further slow down. The global supply chains might be further reshaped due to geopolitical uncertainty and more Chinese enterprises might consider greenfield investment to keep up with the growing trend of getting closer to the consumer market.”

China outbound investments steadily improved and B&R growths were above average

China’s Ministry of Commerce (MOFCOM) statistics showed that China overall ODI reached US$34.3 billion in Q1 2022, up 7.9% YOY. China non-financial ODI reached US$26.9 billion, up 8.5% YOY; US$5.5 billion of which went to the wholesale and retail sector, up 36.3% YOY, and US$4.4 billion to the manufacturing industry, up 13.3% YOY. The B&R non-financial ODI reached US$5.3 billion, up 19% YOY, representing 19.5% of the total, up 1.7 percentage points YOY. The investments were made mainly in ASEAN, Pakistan, the United Arab Emirates, and Saudi Arabia.

China overseas M&As impacted by both the pandemic and international complexity

In Q1 2022, the announced China overseas M&A value reached US$5.9 billion, down 65% YOY, at its historic low of a single quarter. There were 107 announced deals, down 25% YOY.

• Sector analysis

In Q1 2022, the TMT industry was still the most popular overseas M&A sector for the Chinese enterprises, accounting for over 40% of the total, mainly in the IT consulting and services, software systems and semiconductor manufacturing. The health care & life sciences sector was the only sector recording increased deal value during the period; by deal volume, the sector accounted for a record high of 17% of the total.

• Geographical analysis
  • Europe was the top destination for China overseas M&As by both deal value and volume. The deal value in Europe reached US$2.13 billion, though down 74% YOY, topped geographically after falling behind Asia for three consecutive quarters. There were 43 announced deals, down 20% YOY. By deal value, the investments were made mainly in Germany, Italy, the Netherlands and in the health care & life sciences, TMT, financial services sectors, etc. The Russian-Ukrainian conflict impacted negatively on the global economic stability, especially in Europe. The European countries faced rising inflation and the need to accelerate the transition to new energy. For instance, the Cabinet of the German federal government passed the legislation for a two-step national strategy, which targets to achieve 80% renewable energy power supply by 2030 and nearly 100% by 2035. Looking ahead, investment and cooperation opportunities in the European renewable energy sector may further increase.
  • China overseas M&As in Asia reached US$2.11 billion, down 63% YOY. There were 30 announced deals, down 19% YOY. The investments were made mainly in India, Singapore, South Korea and in the TMT, consumer products, health care & life sciences sectors, etc. Benefiting from the steady and enduring progress of the B&R development, and the increased demand for regional supply chain optimization under the Regional Comprehensive Economic Partnership Agreement (RCEP), Asia is expected to continue to be a key region for China outbound investment.
  • China overseas M&As in North America reached US$1.17 billion, further down 41% YOY. There were 22 announced deals, down 39% YOY. The investments were primarily made by private equity investment institutions in the TMT, financial services, advanced manufacturing & mobility sectors.

Slower global economic recovery and fewer new overseas contracts to Chinese enterprises 

Newly-signed China overseas EPC projects decreased 11.5% YOY to US$47.4 billion in Q1 2022. Overseas EPC turnover was US$29 billion, down 3.7% YOY. There were 207 newly-signed overseas projects with each contract exceeding US$50 million in value. Among them, there were 109 projects with each contract exceeding US$100 million, including the oil and gas pipeline project in Uganda worth more than US$600 million⁵. Value of newly-signed EPC contracts in the B&R countries and regions reached US$24.6 billion, down 21.4% YOY, accounting for 52% of the total. Overseas EPC turnover in the B&R countries and regions was US$16.0 billion, down 10.1% YOY, accounting for 55.1% of the total.

¹ Source: China MOFCOM

² 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 7 April 2022; EY analysis

³ Sources: Trading Economics, EY analysis

⁴ Source: The IMF forecasts in January and April 2022 respectively

⁵ Source: www.investgo.cn

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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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