ERNST & Young released, on November 5, the Overview of China Outbound Investment in the first three quarters of 2019, according to which China’s overall ODI in the first three quarters of 2019 amounted to US$87 billion, down 2.3% year-on-year (YOY) while non-financial ODI was US$81 billion, down 1.3% YOY.

The structure of China’s ODI continued to be optimized and diversified, and investments in manufacturing, wholesale and retail grew by 3.2% and 12.4% YOY respectively despite the overall downward trend.

In the first three quarters of 2019, the announced value of China overseas M&As reached US$42.8 billion, down 44.6% YOY; the announced deal volume was 424, down by 31.2% YOY. China overseas M&A activities remained prudent however - in Q3 M&A value saw a 152.2% increase quarter-on-quarter (QOQ), preliminarily reversing the downward trend.

China overseas M&As continued to focus on the high-end value chain. By deal value, the M&A activities were dominated by consumer products, TMT, and financial services sectors; by deal volume, the top three sectors were TMT, advanced manufacturing & mobility and consumer products.

In the first three quarters of 2019, China’s ODI continued to develop in a healthy and orderly manner. According to the Ministry of Commerce (MOFCOM), China’s overall ODI amounted to US$87 billion, down 2.3% YOY; non-financial ODI was US$81 billion, down 1.3% YOY.

The main investment sectors in the first three quarters of 2019 were leasing and commercial services, manufacturing, wholesale and retail, accounting respectively for 33%, 17.5% and 10.5% of the total. Despite the overall downward trend, investments in manufacturing, wholesale and retail grew respectively by 3.2% and 12.4% YOY.

In the first three quarters of 2019, 424 overseas M&As were announced by Chinese enterprises, down 31.2% YOY, with a total value of US$42.8 billion, down 44.6% YOY. But announced M&As in Q3 reached US$19.8 billion, recorded an increase of 152.2% QOQ, while the YOY decline narrowed. In the context of the weak global economy and global geopolitical tension, China overseas M&As remained prudent.

Sector analysis:

Driven by the industrial transformation and upgrading, sectors that support structural adjustment, transformation and upgrading have gradually become popular for China overseas M&As. In the first three quarters of 2019, China overseas M&As were concentrated in high- value-added and high-technology sectors such as consumer products, TMT, financial service and advanced manufacturing & mobility.

By deal value, China overseas M&As were dominated by consumer products (US$9.5 billion), TMT (US$8.5 billion) and financial services (US$6.2 billion) sectors, accounting for 56.5% of the total. Only the financial services sector achieved YOY increase while other sectors declined.

By deal volume, TMT (99), advanced manufacturing & mobility (70), and consumer products (57) were the top sectors for Chinese investors, accounting for approximately 53.3% of the total.

Geographical analysis:

In the first three quarters of 2019, Asia and Oceania both recorded double-digit growth, despite the overall M&A value falling sharply – Asia (US$14.7 billion, up 33.1% YOY) and Oceania (US$5.7 billion, up 18.1% YOY).

Asia was the top destination for China overseas M&As, accounting for over 30% of the total, with key sectors being TMT, financial services and real estate, hospitality & construction (RHC); whereas in Oceania, key sectors were consumer products, health & life science and RHC.

Investors still keep a wait-and-see attitude towards the European market. In the first three quarters of 2019, the announced M&As in Europe value decreased by 70% YOY to US$12.9 billion, which indicated that investments in this region remained prudent. Key sectors were consumer products, TMT and advanced manufacturing & mobility.

China overseas M&As in North America continued to be affected by geopolitical risks and policy resistance. In the first three quarters of 2019, the announced value of China overseas M&As in North America were US$4.1 billion, down 67% YOY, key sectors were TMT, financial services and mining & metals.

Overseas EPC projects led to mutual benefit and win-win results, and drove local development

According to the MOFCOM, in the first three quarters of 2019, the total value of newly-signed China overseas EPC contracts decreased by 5.1% YOY to US$146.7 billion; the turnover decreased by 6.3% to US$102.1 billion.

Moreover, 528 new overseas EPC projects with a contract value of more than US$50 million were signed, increased by 11 projects YOY, accounting for 83.4% of the total. Newly-signed contacts in Belt and Road countries increased by 18.4% to US$86.8 billion, accounting for 59.2% of the total.

As of September 2019, China overseas EPC enterprises had created a total of 815,000 jobs for the host countries, which drove local development and achieved mutual benefit and win-win results.