Overall China outbound investment shows adjustments but B&R gains momentum

Overall China outbound investment shows adjustments but B&R gains momentum


EY predicts that the improved investment policy and environment in 2018 will drive China overseas investment to grow steadily and healthily and to focus on the real economy as infrastructure, construction, health care sectors are expected to keep the momentum. Meanwhile, B&R investment will continue to boost regional economy.

Three factors indicating China overseas investment has entered into a steady adjustment period

Against the backdrop of tightened cross-border capital control and increased global investment uncertainties in 2017, China’s outward direct investment (ODI) decreased by 32% on a year-on-year (YoY) basis to US$134 billion. Loletta Chow, Global Leader of EY’s China Overseas Investment Network (COIN), identifies three characteristics in China outbound investment reflecting a shift to steady adjustment stage:
Firstly, industrial structure continued to optimize with investment focused on real economy sector.
Secondly, investment is being stabilized and regain growth momentum at the year end.
Thirdly, investments to B&R countries increased despite overall drop in China outbound investment.

Industrial structure continues to optimize and transportation and life sciences industries are becoming increasingly dynamic

With respect to overseas M&As, total investment announced by Chinese companies fell 32% YoY to US$144.8 billion in 20172. Alex Zhu, EY’s China North Transaction Advisory Services Leader says, “Despite a significant decline in Chinese overseas M&As, deal value in automotive and transportation, power and utilities, oil and gas and life sciences posted a YoY increase. That shows even though the scale of China outbound investment decreased in 2017, investments in real economy still keep a steady momentum.”

In 2017, the deal value of Chinese overseas M&As in the automotive and transportation sector swelled to US$45.1 billion, up 504% YoY, hitting a new high and topping all sectors by deal value. 4 out of top 10 overseas M&As that were disclosed in 2017 came from the automotive and transportation sector. Given that the development of transportation is the foundation for facility connectivity, according to EY, with further development of the Belt and Road Initiative (BRI), Chinese enterprises will continue expanding their footprint in the global automotive and transportation market (especially in Asia) as they gain more international competitiveness.

In the meantime, as China has been boosting the industrial and consumption upgrade in domestic life sciences sector, China overseas investment in the sector surged due to expanded market demand. Data show that Chinese overseas M&As in life sciences sector have enjoyed an annual growth of more than 40% for 3 consecutive years. In 2017, disclosed value of China overseas M&As increased 61% YoY to US$9.9 billion. “In recent years, Chinese overseas investments in life sciences sector show four characteristics,” Alex Zhu adds. “Firstly, both pharmaceutical groups and institutional investors increase investments in innovative products and technologies. Secondly, Chinese enterprises achieve synergy across different businesses along the industrial value chain to strengthen corporate competitiveness. Thirdly, Chinese enterprises realize their international strategies through overseas M&As. At last, transactions are in line with national strategies and corporate demands, while the BRI drives regional investments.”

EY predicts that Chinese overseas investment in the life sciences sector is expected to continue achieving rapid growth, while innovative technologies and products and life-sciences companies along the B&R will keep being targets of Chinese enterprises.


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