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Overview of China outbound investment of 2021

Photographic portrait of Loletta Chow

8 minute read 10 Feb 2022

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Higher investment growth was observed in Belt and Road region; health care and life sciences sector in Europe and North America was popular. China’s overall outward direct investment (ODI) maintained its steady development in 2021 with a year-on-year (YOY) increase of 9.2% to US$145.2 billion.

In brief

China’s overall ODI reached US$145.2 billion in 2021, up 9.2% YOY, whilst non-financial ODI reached US$113.6 billion, up 3.2% YOY. Belt and Road (B&R) non-financial ODI increased 14.1% YOY, which continued to outperform the overall growth rate.
The announced value of China overseas mergers and acquisitions (M&As) reached US$57 billion, up 19% YOY but down 28% compared to 2019. There were 516 announced deals, down 4% YOY, marking the lowest in seven years.
Newly-signed China overseas engineering, procurement and construction (EPC) projects increased 1.2% YOY to US$ 258.5 billion. There were more major projects in transportation.

The ongoing and resurgence of the pandemic gave rise to a spectrum of challenges. Economic recovery of countries and regions during the year fell short of expectation and varied with considerable divergences. The IMF’s January 2022 World Economic Outlook Update expected the global growth to increase 4.4%, half a percentage point lower from its previous estimate. China’s economy realized an 8.1% increase in 2021 showing some levels of resilience. Yet, the external environment got progressively complex and uncertain and domestic economy faced three-pronged pressures of contraction of demand, supply shocks and weaker expectations¹. New challenges are on the horizon in 2022. Nonetheless, EY identified three trends of China overseas investment for cautious optimism: 1) China would make further use of the manufacturing advantages to explore and deeply participate in reshaping the global industrial and supply chains; overseas greenfield investment is on the rising trend; 2) the health care and life sciences would continue to be a leading sector in China overseas M&As; digitalization may help medical services extend from disease curing to health care leading to diversified and multi-disciplinary investment in this sector; 3) investment in green and sustainable development would gradually pick up to be a key contributor for expanding international cooperation of Chinese enterprises¹.

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China outbound investments developed steadily with a higher proportion of greenfield

The data from MOFCOM showed that China’s overall ODI reached US$145.2 billion in 2021, up 9.2% YOY, exceeding the 2019 pre-pandemic level (US$136.9 billion). Chinese domestic investors made a total non-financial ODI of US$113.6 billion to 6,349 overseas enterprises globally in 166 countries and regions, up 3.2% YOY. The B&R non-financial ODI reached US$20.3 billion, up 14.1% YOY, representing 17.9% of the total non-financial ODI, up 1.7 percentage points YOY, mainly to ASEAN, Bangladesh, the UAE, and Kazakhstan.

In these years, China overseas M&As experienced higher volatility whereas China’s ODI has steadily developed with more overseas greenfield investment amid stricter foreign investment scrutiny on cross-border M&As. Looking ahead, the trend of participation by Chinese enterprises in the global industrial chain will endure and Chinese overseas greenfield investment will continue.

Figure 1: China’s non-financial ODI (US$ billion)

Source: China MOFCOM

Figure 1: China’s non-financial ODI (US$ billion)

Overseas M&As had less momentum to rebound; health care and life sciences M&As increased for two consecutive years

In 2021, the announced China overseas M&A value reached US$57 billion, up 19% YOY. There were 516 announced deals which decreased 4% YOY, the lowest in seven years. The total deal value was 28% short of the 2019 pre-pandemic level (US$79.4 billion). Less momentum was observed in Q4 to rebound for more deals and the announced deal value was also at its historic low.

Figure 2: Announced value of China overseas M&As (US$ billion) analysis

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 4 January 2022; EY analysis

Figure 2: Announced value of China overseas M&As (US$ billion)

Figure 3: Top five sectors in the announced China overseas M&As in 2021

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 4 January 2022; EY analysis

Figure 3: Top five sectors in the announced China overseas M&As in 2021

By deal value, the top three sectors in 2021 were TMT, real estate, hospitality & construction, as well as advanced manufacturing & mobility, accounting for 55% of the overall. By deal volume, the top three sectors were TMT, health care & life sciences and financial services, accounting for 60% of the overall.

China overseas M&A volume in TMT has been decreasing in recent years but it is still the most popular sector. In 2021, these investments were made in the US, South Korea, Singapore, the UK, Japan, etc, and major sub-sectors included software systems, semiconductor design and manufacturing, e-commerce, etc.
Health care & life sciences was the only sector recording an increase in both deal value and volume for two consecutive years. In 2021, the deal value of the sector increased by 240% YOY and the volume to a new historic high by 64%. These investments were made in the US, South Korea, India, etc. Major deals included: 1) a Chinese private equity firm led the acquisition of equities of a leading medical beauty company in South Korea. Its numerous medical aesthetic products have taken a lion’s share in South Korea and its products have a worldwide reach; and 2) a Chinese company acquired a known upstream raw material supplier in Finland for in vitro diagnostics. The global medical supply chain is moving toward regionalization and localization; this can create opportunity for Chinese medical enterprises in both “going out” and “bringing in”. Moreover, the pandemic has changed the individual health awareness and behavior for a longer term and the demand for health care services is mounting, paving the way for a comprehensive healthcare upgrade via digitalization.
Asia was the top investment destination with an announced deal value up 85% YOY to US$26.4 billion, representing 46% of the overall in the period. Asia also recorded more large deals compared to 2020, with seven deals exceeding US$1 billion. Half of the top ten destinations in 2021 were situated in Asia including Singapore, South Korea, Indonesia, India and Japan. These destinations in Asia, except India, experienced a three-digit YOY increase rate. The pandemic strongly boosted the demand for online shopping and subsequently for warehousing and logistics. The largest deal in Asia in 2021 was made by a leading integrated logistics real estate platform in China for acquiring a leading Asia-Pacific property investment management company in Singapore to enhance its leading position as a new economy real estate platform (such as logistics real estate portfolio and data centers) in Asia Pacific. In addition, optimism for e-commerce in Asia has led to investment of an international express logistics company in Indonesia by some leading Chinese private equities and enterprises which collectively injected more than US$4 billion.
The announced China M&A value in Europe reached US$ 16.0 billion, up 13% YOY. There were 161 transactions mainly in the consumer products, TMT and health care and life sciences sectors. Higher increases in deal value were made in the Netherlands, UK, Denmark and Luxembourg whereas the deal value in conventionally popular destinations such as Germany and France dropped to historic lows. Notably, the volume of health care and life sciences M&As in Europe by Chinese enterprises doubled in 2021 from 2020; the deal value even increased 354%, more than those of other major continents. Notable developments by value were made in Finland and Italy.
The announced China overseas M&A value in North America was US$8.8 billion, down 35% YOY. There were 134 deals in North America, up 13%. Among which, 86% in the deal volume was situated in the US, reflecting the Chinese investor interest there. The US remained the top destination with 115 deals in 2021. The country was also among the few countries to have recorded YOY growths in deal volume for two consecutive years, primarily in the health care and life sciences sector (mainly in research of biological products research and pharmaceutical development), with a YOY increase of 121%. However, impacted by geopolitics and stringent investment scrutiny, Chinese M&As in the US have featured with a smaller scale and lower value; the year 2021 was the first in a decade when no single deal value made in the country exceeded US$1 billion.

Figure 4: Deal value and volume of China overseas M&As by continent in 2021

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 4 January 2022; EY analysis

Figure 4: Deal value and volume of China overseas M&As by continent in 2021

Figure 5: Top 10 destinations of China overseas M&As in 2021 (by deal value: US$ billion)

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 4 January 2022; EY analysis

Figure 5: Top 10 destinations of China overseas M&As in 2021 (by deal value: US$ billion)

Figure 6: Top 10 destinations of China overseas M&As in 2021 (by deal volume)

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 4 January 2022; EY analysis

Figure 6: Top 10 destinations of China overseas M&As in 2021 (by deal volume)

More overseas transportation EPC contracts support global connectivity

The newly-signed China overseas EPC projects increased 1.2% YOY to US$258.5 billion in 2021. The overseas EPC turnover was US$155.0 billion, down 0.6% YOY. More newly-signed overseas EPC contracts were signed. The number of new projects each value exceeding US$100 million increased 46 to 560, mainly in infrastructure such as transportation. The value of newly-signed EPC contracts in the B&R countries and regions reached US$134.0 billion, down 5.2% YOY, accounting for 51.9% of the overall. The overseas EPC turnover in the B&R countries and regions was US$ 89.7 billion, down 1.6% YOY, accounting for 57.9% of the overall.

The new key projects in 2021 included: the AU$11 billion (about US$7.8 billion) North East Rail Line project in Melbourne, Australia; US$5 billion Belgrade Metro project in Serbia and US$3 billion Nigeria Eastern railway rehabilitation project. Additionally, numerous key transportation projects were completed in 2021, such as the opening of the China-Laos Railway, a milestone Belt and Road project, as well as the completion and commencement of the Russian Metro project, the first time Chinese enterprises participated in a metro construction project in Europe.

Figure 7: Value of newly-signed China overseas EPC contracts (US$ billion)

Sources: China MOFCOM

Figure 7: Value of newly-signed China overseas EPC contracts (US$ billion)

Summary

China’s overall ODI maintained its steady development in 2021 with a YOY increase of 9.2% to US$145.2 billion. The announced China overseas M&A value reached US$57 billion, up 19% YOY. Health care & life sciences was the only sector recording increases in both deal value and volume for two consecutive years, with Europe recording the largest growth. The pandemic continued to accelerate the development of health care & life sciences. Asia was the top investment destination for the year by deal value, representing 46% of the overall, up 85% YOY.

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