EY releases the Overview of China outbound investment of Q1 2023

• _{China overall outward direct investment (ODI) was US$40.5 billion in the first quarter of (Q1) 2023, representing a significant year-on-year (YOY) increase of 18%. The non-financial ODI was US$31.5 billion, up 17.2% YOY. The Belt and Road (B&R) non-financial ODI increased 9.5% YOY to US$5.8 billion.}
• _{The value of announced China overseas mergers and acquisitions (M&As) was only US$3.5 billion, down 26% YOY to a recent quarterly low. The number of announced deals decreased by 4% to 116.}
  • _{Sector-wise by deal value, 73% of the total took place in the top three sectors, namely advanced manufacturing & mobility, real estate, hospitality & construction, and TMT*. The advanced manufacturing & mobility sector saw an unexpected growth of 87%, becoming the most popular sector for the first time in five years. By deal volume, 61% of the total took place in the top three sectors, namely TMT, advanced manufacturing & mobility, and financial services.} 
  • _{From a regional perspective, Asia remains the most popular, with both deal value and volume ranking first among all continents. Of the top 10 destinations for Chinese enterprises, four were from Asia, including Vietnam, Oman, Japan and South Korea.}
• _{Newly-signed China overseas engineering, procurement & construction (EPC) projects decreased 9% YOY to US$43.2 billion. However, the proportion of newly-signed B&R EPC projects increased considerably, up 7.2 percentage points YOY. Completed turnover of China overseas EPC projects totaled US$31.7 billion, up 9.2% YOY.}

_{*Note: The TMT sector refers to technology, media & entertainment and telecommunications}

_{EY Greater China region today releases the Overview of China outbound investment of Q1 2023. The report shows that China overall ODI remarkably increased 18% YOY to US$40.5 billion in Q1 20231. However, the announced China overseas M&A activities continued to be sluggish, with announced deal value reaching a recent quarterly low of US$3.5 billion, down 26% YOY. Asia remains the most popular destination for overseas M&As2.}

_{Loletta Chow, Global Leader of EY China Overseas Investment Network (COIN), says: “Amid the volatile international financial market in Q1 2023, the global economy was projected to increase 2.8%3. Inflation pressure appeared to have eased from previous heights among advanced economies. Yet, the gap from the target level is still there and, therefore, interest rates among key economies might be kept relatively higher in the near term and the global economic downward pressure might continue. In addition, the fragmented impact of geopolitical risks on investment and economic output is expanding, posing challenges for Chinese enterprises going abroad. On the other hand, China’s economy has shown signs of recovery this year, with consumption growth turning positive, foreign trade improving month by month, and ODI recording a significant YOY growth in Q1. With the steady economic development of China in Q1 and the promotion of high-level opening-up, the momentum of China outbound investment is expected to further increase. Moreover, the high-level interactions between China and many countries in the early 2023 may also provide increased direction and opportunities for Chinese enterprises seeking overseas development.”}

_{ODI made a positive start, recording double-digit increase} 

_{Statistics shows that in Q1 2023, China overall ODI reached US$40.5 billion, up 18% YOY. China non-financial ODI was US$31.5 billion during the period, up 17.2% YOY. Some industries saw faster growth in ODI, with investments in wholesale & retail industry and transportation, warehousing and postal services increasing by 31.4% and 24.4%, respectively. The B&R non-financial ODI was US$5.8 billion, up 9.5% YOY and representing 18.3% of the total for the same period, mainly invested in countries and regions such as ASEAN, Serbia, the United Arab Emirates and Kazakhstan1.}

_{China overseas M&As continued to decrease with advanced manufacturing & mobility as the most popular sector}

_{In Q1 2023, the value of announced China overseas M&As was only US$3.5 billion, down 26% YOY to a recent quarterly low. The number of announced deals decreased by 4% to 116.} 

• _{Sector analysis}

_{In Q1 2023, by deal value, the top three sectors were advanced manufacturing & mobility, real estate, hospitality & construction, and TMT, accounting for 73% of the total deal value. Larger increases were recorded in the sectors of advanced manufacturing & mobility, and real estate, hospitality & construction, up 87% and 191% YOY, respectively. Some major deals during this period include: 1) a Chinese enterprise acquired the power conversion division of a known Swiss company located in the US to improve its product portfolio, accelerate its development in the power industry and North American market; 2) a Chinese real estate management enterprise acquired a minority stake of a logistics and industrial new economic real estate platform in Vietnam; 3) a Chinese enterprise acquired partial shares of a container terminal in Egypt, to further strengthen its terminal portfolio; 4) a Chinese company acquired a German automotive parts company to promote its industrial chain integration and consolidate its development advantages in the field of electric vehicles.}

_{By deal volume, 61% of the total took place in the top three sectors, namely TMT, advanced manufacturing & mobility, and financial services. The number of TMT deals increased 34% YOY, but the proportion of undisclosed transactions increased by seven percentage points compared to the same period last year, which is also part of the reason for the decrease in value of TMT deals.} 

• _{Regional analysis}
  • _{Asia: In Q1 2023, the deal value and volume announced by Chinese enterprises in Asia both ranked first, with a deal amount of US$1 billion, down 34% YOY. However, Asia is the only continent to record an increase in deal volume, with a 38% YOY increase to 51 deals. Among the top 10 destinations favored by Chinese enterprises, four were from Asia, namely Vietnam, Oman, Japan and South Korea, collectively accounting for 87% of the total value in Asia. In this quarter, the cooperation between China and ASEAN further deepened, with the President of the Philippines, the Prime Minister of Cambodia, the Secretary-General of ASEAN, as well as the Prime Ministers of Singapore and Malaysia visiting China respectively. Each party explored cooperation intentions in multiple fields. Against this backdrop, ASEAN is expected to remain a key region for the international development of Chinese enterprises in the future, pointing to positive prospect and development opportunities in infrastructure, green and digital economies, and finance.} 
  • _{Europe: China overseas M&As in Europe totaled US$952 million, down 39% YOY. There were 32 announced deals, down 24% YOY. Investment to the UK (the real estate, hospitality & construction sector) and Germany (the advanced manufacturing & mobility sector) collectively took up 86% of the total value. In Q1 2023, inflation in Europe has eased, and the IMF forecast a growth of 0.8% for the Eurozone in 20233, 0.1 percentage point higher than its forecast made in January 2023. Recent frequent interactions of China and Europe brought positivity in the economic and trade areas. These included the visits made by the Prime Minister of Spain, the President of the European Commission and the President of France to China. Bilateral cooperation documents were signed between China and Spain on areas such as education, customs and sports. China and France have agreed to deepen cooperation in traditional areas such as agri-food, aerospace, civil nuclear energy, and cultivate new cooperation in green, technology and innovation.}
  • _{North America: China overseas M&As in North America totaled US$903 million, down 6% YOY. There were 21 announced deals, down 9% YOY. Chinese investment in North America was mainly in the sectors of TMT and health care & life sciences, collectively accounting for 94% of the total in the continent. Though the decrease of the China M&As in the US narrowed during the period, geopolitics remained a restrictive impact amid the current Sino-US relations.}
  • _{Africa: China overseas M&As in Africa totaled US$375 million, down 11% YOY. There were four announced deals, unchanged YOY. A major deal was the Chinese equity acquisition of a container terminal in Egypt.}
  • _{Latin America: Latin America was the only continent that achieved a deal value increase in this quarter, with a total amount of US$134 million, up 13% YOY. There were five announced deals, down 29% YOY. During the recent visit by the newly elected Brazilian President to China, the two countries agreed to deepen their comprehensive strategic partnership, and strengthen investment and cooperation in areas such as infrastructure, energy transformation, logistics, energy, mining, agriculture, industry and high technologies. Being the largest economy and most populous country in Latin America, Brazil’s deepening economic and trade cooperation with China is encouraging and can have a demonstrative effect for further cooperation between China and other Latin American countries.}
  • _{Oceania: China overseas M&As in Oceania totaled US$123 million, down 28% YOY. There were three announced deals, down 63% YOY. The investment mainly went to the mining & metals sector in Australia.}

_{Turnover of overseas EPC projects increased relatively quickly and percentage of newly-signed B&R projects rose considerably}

_{In Q1 2023, the total amount of newly-signed China overseas EPC projects decreased 9% YOY to US$43.2 billion. However, the amount in the B&R countries and regions increased 3.7% YOY to US$25.5 billion, which represented 59.2% of the total during the period, up 7.2 percentage points YOY. The value of completed turnover of Chinese overseas EPC projects was US$31.7 billion, up 9.2% YOY, while the value in the B&R countries and regions was US$17 billion, up 6.5% YOY, accounting for 53.7% of the total1. Examples of new mega-scale projects in this quarter include: 1) an investment agreement signed for solar photovoltaic power production in Uzbekistan with an investment of about US$2 billion; 2) an urban railway project in the Democratic Republic of the Congo (Congo-Kinshasa) worth about US$970 million; 3) a seawater desalination project and a camp project in Saudi Arabia with a combined contract value of about US$650 million; 4) a contract signed for building a cement production line in Nigeria worth about US$580 million4.}

_{¹ Source: China MOFCOM}

_{² Sources: Refinitiv; Mergermarket, including data from Hong Kong, Macau and Taiwan, and deals that have been announced but not yet completed, data was downloaded on 3 April 2023; EY analysis}

_{³ Source: World Economic Outlook, IMF, April 2023}

_{⁴ Source: Public domain information}

_-Ends-

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_{About COIN
The China Overseas Investment Network (COIN) connects EY professionals around the globe, facilitates cooperation and provides consistent and coordinated services to the Chinese clients to make outbound investments. Building on the existing China Business Group in the Americas, EMEIA, and Asia-Pacific areas, COIN has expanded its 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 to assist Chinese companies in going global and doing business overseas. The EY global organization with strong local experience and deep industry knowledge enables faster responses and professional services for the clients.}

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