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- China overall outward direct investment (ODI) reached US$68.8 billion in the first half (H1) of 2022, down 3.6% year-on-year (YOY), while non-financial ODI reached US$54.2 billion, up 0.6% YOY. The Belt and Road (B&R) non-financial ODI increased 4.7% YOY1, which continued to outperform the overall growth rate.
- The announced value of China overseas mergers and acquisitions (M&As) reached US$16.1 billion, down 36% YOY. The China overseas M&As in the second quarter (Q2) got slightly warmer compared to Q1 2022 and the same period of last year. Deeper uncertainty in the global market, however, is likely to restrain the increase.
- Sector-wise by deal value, the top three sectors were TMT*, advanced manufacturing & mobility, and health care & life sciences. Both the value and volume of mining and metals M&As recorded a substantial increase, up about 100% YOY, in H1 2022. Moreover, the consumer product sector recorded the lowest M&A value in a decade, down 81% YOY.
- Asia was again the top overseas M&A destination during the period, recording the highest deal value and volume among all major continents. By deal value, half of the top 10 destinations were situated in Asia, namely South Korea, Singapore, India, Indonesia and the Philippines. During the period, Chinese investors became interested again in Australia despite the weaker global sentiments, with YOY increases in deal value (+115%) and volume (+140%), and the most popular mining and metals sector taking up more than 30% by deal volume.
- Newly-signed China overseas engineering, procurement and construction (EPC) projects decreased 6.2% YOY to US$103.6 billion.
*Note: TMT sector refers to technology, media & entertainment and telecommunications
EY today releases the Overview of China outbound investment of H1 2022. The overview shows that China ODI was generally stable in H1 2022, and the B&R non-financial ODI increased 4.7% YOY, which continued to outperform the overall growth rate. The China overseas M&As in Q2 2022 got slightly warmer compared to Q1 2022 and the same period of last year. Asia was again the top overseas M&A destination during the period, recording the highest deal value and volume among all major continents2.
Loletta Chow, Global Leader of EY China Overseas Investment Network (COIN), says: “There is greater risk of slowing global economy. Chinese enterprises have found themselves in a progressively complex environment when investing overseas. Regional geopolitical tension continues to bring challenges to global economic momentum, including growing global energy and food prices, and sharply rising inflation rates in developed and emerging markets. Rapid interest rate hikes of some developed countries have resulted in some money outflows from emerging markets and a probably higher risk of macro-economic volatility. In addition, the pandemic resurgence in China has some effects on the economic growth and the profitability of enterprises. In addition to the national policies that encourage the internal circulation of capital in the country, Chinese enterprises may lean to caution over investing abroad in the short run. Nonetheless, overseas markets that have transformational potential are still attractive to Chinese enterprises. For example, in the new energy automotive sector, leading enterprises along the value chain have intensified overseas development in popular destinations in Europe, Latin America and ASEAN. Looking ahead, greenfield investment by Chinese enterprises may provide fresh opportunities.”
Non-financial ODI develops steadily, especially in the real economy
China’s Ministry of Commerce (MOFCOM) statistics showed that the China overall ODI reached US$68.8 billion in H1 2022, down 3.6% YOY. China non-financial ODI reached US$54.2 billion, up 0.6% YOY. Investments in leasing and business services, wholesale & retail, manufacturing, construction, scientific research and technology services showed an upward trend. The B&R non-financial ODI reached US$10.0 billion, up 4.7% YOY which continued to outperform the overall growth rate. It represented 18.5% of the total, up 0.7 percentage points YOY. The investments were made mainly in ASEAN, Pakistan, the United Arab Emirates and Bangladesh.
China overseas M&As increased in Q2 but market can become weaker in the short term
In H1 2022, the announced China overseas M&A value reached US$16.1 billion, marking a drop at 36% YOY. More M&A activities were recorded in Q2 2022, up 35% YOY and 96% from Q1 2022 respectively by value. There were 243 announced deals in H1 2022, down only 9% YOY, however larger deals over US$500 million dropped considerably by volume.
- Sector analysis
In H1 2022, the TMT industry was still the top overseas M&A sector for the Chinese enterprises, accounting for over one-third of the total. The largest overseas M&A deal was made by a Chinese enterprise acquisition of a Dutch leading enterprise of radio-frequency technology. The most popular mining and metals sector recorded a YOY double in both deal value and volume during the period. Despite the weaker economy, quality and strategic mineral resources remain attractive to Chinese enterprises. In addition, it is noted that the consumer product sector recorded the lowest M&A value in a decade, down 81% YOY. It was in line with a decrease of 0.7% in the total retail sales of consumer products in China in H1 2022. Caution over overseas investment was exercised in view of the weaker domestic consumption.
- Geographical analysis
- Asia was the top destination for China overseas M&As by both deal value and volume. The deal value in Asia reached US$6.2 billion, down 25% YOY. There were 83 announced deals, up 15% YOY. By deal value, half of the top 10 destinations were situated in Asia, namely South Korea, Singapore, India, Indonesia and the Philippines. TMT and advanced manufacturing & mobility were the top sectors for investment by Chinese enterprises in Asia.
- China overseas M&As in Europe reached US$5.2 billion, down 50% YOY. The investments were made mainly in the Netherlands, the UK and Italy, accounting for nearly 80% of the total in Europe. There were 81 announced deals, down 13% YOY. The largest overseas M&A deal was made by a Chinese enterprise acquisition of a Dutch leading enterprise of radio-frequency technology.
- China overseas M&As in North America reached US$2.9 billion, down 36% YOY to a record low in a decade. There were 42 announced deals, down 44% YOY. Health care & life sciences was the top sector for investment by Chinese enterprises; exceeding 60% of the China overseas M&As in this sector took place in the US. Notwithstanding foreign investment scrutiny and geopolitical factors, the China M&As in the health care & life sciences sector of the US recorded a small increase by value and the deal volume dropped 54% YOY. Furthermore, the China M&As in the US TMT sector fell 92% by value and 77% by volume during the period.
Overseas EPC project value dips amid rising global uncertainty
Newly-signed China overseas EPC projects decreased 6.2% YOY to US$103.6 billion in H1 2022. Examples were the tunneling project in the Saudi Arabian city of Madinah with a contract value of US$970 million, and the EPC general contracting services for the three-dam construction and water supply projects in Timor-Leste with a contract value of about US$630 million3. Overseas EPC turnover was US$70.6 billion, up 4% YOY. Value of newly-signed China EPC contracts in the B&R countries and regions reached US$52.2 billion, down 11.9% YOY, accounting for 50.4% of the total. Overseas EPC turnover in the B&R countries and regions was US$38.4 billion, down 2.4% YOY, accounting for 54.4% of the total.
1 Source: China MOFCOM
2 Source: Refinitiv; Mergermarket, including data from Hong Kong, Macau and Taiwan, and deals that have been announced but not yet completed, data was downloaded on 6 July 2022; EY analysis
3 Source: Going Global Information Portal
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