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China’s continued economic recovery helped develop external circulation and overseas M&As showed signs of deceleration. China’s overall outward direct investment (ODI) continued to develop steadily with a year-on-year (YOY) increase of 12.3% in H1 2021.
In brief
- China’s overall ODI reached US$71.4 billion in the first half of 2021, up 12.3% compared to H1 2020. Non-financial ODI reached US$53.9 billion, up 4.7% YOY, and Belt and Road (B&R) non-financial ODI reached US$9.6 billion, up 18% YOY, representing 17.8% of the total
- The announced value of China overseas mergers and acquisitions (M&As) reached US$25.3 billion, up 51% compared to H1 2020; however, the growth of M&A value was not sustained in Q2 2021 and recorded a YOY decrease of 17% and a quarter-on-quarter (QOQ) decrease of 55%
- China overseas engineering, procurement and construction (EPC) projects developed steadily. The total value of newly-signed EPC contracts reached US$110.5 billion, up 3.1% YOY. The EPC turnover was US$68 billion, up 12.2% YOY
China’s economy experienced a continued stable recovery in the first half year of 2021, recording a GDP growth of 12.7% YOY¹ . The total imports and exports of goods recorded an all-time high, up 22.8% from 2019². China’s ODI and overseas M&As both recorded growths and the development of the external economic circulation has been positive. The global economy made its way to reset and recover as vaccination rates increased. The 14th Five‑Year Plan (2021-2025) for the development of commerce issued by the MOFCOM firmly stated that the country will further support Chinese enterprises in the participation of the reshaping of global industrial and supply chains by promoting the synergy between domestic and foreign industries and by promoting the going abroad of Chinese products, services, technologies, brands and standards. Chinese enterprises need to carefully navigate geopolitics and international dynamics. Moreover, Chinese multinational enterprises should improve cross-border operations, strengthen Chinese brands domestically and internationally and strive to achieve a win-win situation. This could be conducive to improving the recognition of ‘Chinese capital’ globally, creating a more favorable environment for the internationalization of Chinese enterprises in the longer run.
China’s ODI in IT, scientific research services and transportation industries rose relatively quickly and the B&R investment grew faster than the overall
Data of the MOFCOM showed that China’s overall ODI reached US$71.4 billion in H1 2021, up 12.3% YOY, and non-financial ODI reached US$53.9 billion, up 4.7% YOY. Investments in the information technology (IT), scientific research services and transportation industries grew relatively quickly at 26.8%, 74.2% and 98.7% YOY respectively. The B&R non-financial ODI reached US$9.6 billion, up 18% YOY, representing 17.8% of the total.
Figure 1: China’s non-financial ODI (US$ billion)
Source: China MOFCOM
Overseas M&As showed signs of deceleration, recording a QOQ decrease of 55% in Q2 2021
In H1 2021, the announced value of China overseas M&As reached US$25.3 billion, up 51% YOY. There were 251 announced deals which decreased 10% YOY. However, the Q2 2021 announced M&A value was only US$7.8 billion, the growth seen in Q1 2021 was not sustained and recorded a YOY decrease of 17% and a QOQ decrease of 55%. The deterioration of the pandemic in several Asian countries in the second quarter partly explained the slowdown in Chinese M&A activities in Asia. In addition, the impeded China-EU Comprehensive Investment Agreement also led to an increase in regional geopolitical risks; economic complementarity between the EU and China in the longer run can still attract Chinese investment while Chinese investors may be inclined to be more prudent at the moment.
Figure 2: Announced value of China overseas M&As (US$ billion)
Source: China MOFCOM
Figure 3: Top five sectors in the announced China overseas M&As in H1 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 5 July 2021; EY analysis
Figure 4: Deal value and volume of China overseas M&As by continent in H1 2021
Sources: ThomsonOne; Mergermarket, including data from Hong Kong, Macau and Taiwan and deals that have been announced but not yet completed, downloaded on 5 July 2021; EY analysis
Figure 5: Top 10 destinations of China overseas M&As in H1 2021 (US$ billion)
Sources: ThomsonOne; Mergermarket, including data from Hong Kong, Macau and Taiwan and deals that have been announced but not yet completed, downloaded on 5 July 2021; EY analysis
China overseas EPC contracts made steady progress
The total value of China newly-signed overseas EPC contracts increased 3.1% YOY to US$110.5 billion in H1 2021. The total China overseas EPC turnover was US$68 billion, up 12.2% YOY. In B&R countries and regions, the value of newly-signed EPC contracts reached US$ 59.3 billion, down 1.7% YOY. The EPC turnover in B&R countries and regions was US$39.4 billion, up 10.6% YOY. The number of new projects each value exceeding US$50 million increased by 6% YOY to 404 and major projects included the Nasiriyah International Airport project in Iraq and the Balakot hydroelectric power station project in Pakistan.
Figure 6: Value of newly-signed China overseas EPC contracts (US$ billion)
Sources: China MOFCOM
Summary
China’s overall outward direct investment continued to develop steadily with a year-on-year increase of 12.3% in H1 2021. The announced value of China overseas M&As reached US$25.3 billion, up 51% YOY. Europe was China’s top overseas M&A destination in H1 2021, up 210% year-on-year. Technology, media & entertainment and telecommunications (TMT), consumer products as well as advanced manufacturing & mobility were the top three sectors.