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Overseas mergers and acquisitions decelerate and greenfield investment shows upward trend. China overall ODI reached US$34.3 billion in Q1 2022, up 7.9% YOY.
In brief
- 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 rate1.
- 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% YOY2.
- Newly-signed China overseas engineering, procurement and construction (EPC) projects decreased 11.5% YOY to US$47.4 billion1.
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$5.3 billion, up 19% YOY, representing 19.5% of the total, up 1.7 percentage points YOY. The investments were made mainly in ASEAN, Pakistan, the United Arab Emirates and Saudi Arabia.
Figure 1: China overall ODI (US$ billion)
Source: China MOFCOM
Figure 2: China non-financial ODI along the B&R (US$ billion)
Source: China MOFCOM
China overseas M&As impacted by both the pandemic and international complexity
In Q1 2022, the announced China overseas M&A value reached US$5.9 billion, down 65% YOY, at its historic low of a single quarter. There were 107 announced deals, down 25% YOY.
Figure 3: Announced value of China overseas M&As (US$ 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 7 April 2022; EY analysis
Figure 4: Deal value and volume of top 5 sectors of China overseas M&As in Q1 2022
*Note: The TMT sector refers to technology, media & entertainment and telecommunications
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
Figure 5: Deal value and volume of China overseas M&As by continent in the Q1 2022
* The deal value of Latin America is not available
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
Figure 6: Top 10 destinations of China overseas M&As in Q1 2022 (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 7 April 2022; EY analysis
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$16.0 billion, down 10.1% YOY, accounting for 55.1% of the total.
Figure 7: Value of newly signed China overseas EPC contracts (US$ billion)
Source: China MOFCOM
Summary
Greenfield investment shows upward trend due to reshaping of global supply chain, while overseas M&As decelerate. China overall ODI reached US$34.3 billion in Q1 2022, up 7.9% YOY. The Belt and Road non-financial ODI continued to outperform the overall growth rate. However, the announced value of China overseas M&As reached US$5.9 billion, down 65% YOY, marking the lowest in a single quarter on record. Health care & life sciences was the only sector recording an increase in deal value during the period. Europe was the top investment destination in Q1 2022, by value and volume among all major continents at over US$2.13 billion and 43 deals. In short term, the momentum of China outbound investment will continue to slow down due to recent geopolitical uncertainties, weaker-than-expected economic recovery worldwide, as well as the continuous challenges from the pandemic.