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Mixed prospects for global economic recovery were observed; overseas M&As in health sector performed impressively. China’s overall outward direct investment (ODI) maintained its steady development in the first three quarters of 2021 with a year-on-year (YOY) increase of 6.3% to US$107.1 billion.
In brief
- China’s overall ODI reached US$107.1 billion in the first three quarters of 2021, up 6.3% YOY, whereas non-financial ODI reached US$80.8 billion, up 2.4% YOY. Belt and Road (B&R) non-financial ODI increased 14.2% YOY, which continued to outperform the overall growth rate.
- The announced value of China overseas mergers and acquisitions (M&As) reached US$46.3 billion, up 79% YOY. Quality development in overseas M&As was on track and strong participation of private equities and investment companies was observed.
- Newly-signed China overseas engineering, procurement and construction (EPC) projects increased 6.2% YOY to US$159.6 billion, mainly in the fields of transport & warehousing, general construction, etc. The overseas EPC turnover was US$107.4 billion, up 17.7% YOY.
With reference to the latest IMF forecasts, the global economy is expected to grow by 5.9% in 2021¹. However, the pressures of inflation and energy supply shortage have added uncertainty. In addition, varying severity of the pandemic and speeds of vaccination across the continents, together with diverging economic structures, have led to geographical disparity of the anticipated economic recovery. Macro market landscape analysis and risk management can be essential in the Chinese overseas M&A planning and execution as they look to capture market opportunities brought by the improved economy in such arenas as digital economy, cross-border e-commerce, supply chain and logistics and consumer products. Meanwhile, the Action Plan for Peaking Carbon Dioxide Emissions before 2030 issued by the State Council of China at the end of October 2021 sets out a clear path in the Chinese energy transformation and therefore greener development in industries and consumption. This will shed the light for Chinese enterprises on investing in overseas energy and carbon reduction technologies, and also further encourage them to optimize their global supply chains.
Investments along the B&R continued to outperform the overall growth rate
The data from China’s MOFCOM showed that China’s overall ODI reached US$107.1 billion in the first three quarters of 2021, up 6.3% YOY². The non-financial ODI reached US$80.8 billion, up 2.4% YOY, mainly in manufacturing; information transmission, software and information technology services, transportation, as well as scientific research and technology services. The B&R non-financial ODI reached US$14.9 billion, up 14.2% YOY, representing 18.4% of the total non-financial ODI, up 1.9 percentage points YOY, mainly to ASEAN, the United Arab Emirates (UAE), Kazakhstan, and Bangladesh.
Figure 1: China’s non-financial ODI (US$ billion)
Source: China MOFCOM
Quality development in overseas M&As was on track; strong participation of private equities and investment companies was observed
In the first three quarters of 2021, the announced China overseas M&A value reached US$46.3 billion, up 79% YOY; yet the value was still 13% less than the same period of 2019 before the pandemic occurred³. There were 382 announced deals which decreased 3% YOY. Among such, we observed strong participation of private equities and investment companies in the China overseas M&As. Nearly half of the China announced overseas deal value and over 40% of the deal volume in the period with each transaction exceeding US$500 million were made by investor groups of private equities and investment companies, representing a YOY increase of 20 percentage points in terms of both deal value and volume. It shows an increased internationalization of Chinese institutional investors. It also indirectly indicated an increase of overseas targets in the markets as the global economy sets to revitalize.
Figure 2: Announced value of China overseas M&As (US$ 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 8 October 2021; EY analysis
Figure 3: Top five sectors in the announced China overseas M&As in the first three quarters of 2021
*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 8 October 2021; EY analysis
Figure 4: Deal value and volume of China overseas M&As by continent in the first three quarters of 2021 (deal value in 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 8 October 2021; EY analysis
Figure 5: Top 10 destinations of China overseas M&As in the first three quarters of 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, downloaded on 8 October 2021; EY analysis
Figure 6: Top 10 destinations of China overseas M&As in the first three quarters of 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, downloaded on 8 October 2021; EY analysis
China overseas EPC contracts focused on transportation and general construction
The newly-signed China overseas EPC projects increased 6.2% YOY to US$159.6 billion in the first three quarters of 2021. The overseas EPC turnover was US$107.4 billion, up 17.7% YOY. More newly-signed overseas EPC contracts were signed. The number of new projects each value exceeding US$50 million increased by 10.8% YOY to 574, mainly in transportation and general construction.
In the B&R countries and regions, the value of newly-signed EPC contracts reached US$80.8 billion, down 3.5% YOY. The overseas EPC turnover in the B&R countries and regions was US$61.8 billion, up 16.3% YOY. Chinese enterprises are intensifying their participation in energy transformation projects in the Middle East. Key projects signed in the period included the building of a total of 2GW photovoltaic power capacity in Iraq as well as the provision of equipment related to a total of 2.1GW photovoltaic power capacity to the UAE⁵.
China announced in September 2021 to step up support for other developing countries in developing green and low-carbon energy and China will not build new coal-fired power projects abroad. It is expected that most of the world will more proactively promote energy transition and transformation and this will set to reshape the future sector landscape of oil & gas, electricity & coal mining, etc.
Figure 7: Value of newly-signed China overseas EPC contracts (US$ billion)
Sources: China MOFCOM
Summary
China’s overall ODI maintained its steady development in the first three quarters of 2021 with a YOY increase of 6.3% to US$107.1 billion. The announced China overseas M&A value reached US$46.3 billion, up 79% YOY. Asia was the top overseas M&A destination representing 45% of the overall in the period. Quality development in overseas M&As was on track and strong participation of private equities and investment companies was observed.