Trend of China’s Outbound Investment is Up

The outbound investment by the Chinese companies has been on the increase for 15 consecutive years, which hit its historical record in 2016 at US$190 billion. China is undoubtedly becoming one of the major “global purchaser〞who has 11% shares in Total Global Outward FDI Flows in 2016.

The pace of outbound investment has been slow down slightly in 2017 (figure 2). China’ s non-financial outbound investment in the first three quarters in 2017 is totally 86.31 billion USD, with a decrease of 40.9% from 2016. One of the main reason behind is the strict control of outbound M&A. Regulators clamped down on outbound deals following the flood of offshore acquisitions in 2016 that drained China’s foreign exchange reserves. During January to October 2017, the Ministry of Commerce and the provincial-level commerce authorities received outbound investment applications from a total number of 4,951 enterprises, but only 39 were approved. The remaining 4,912 were documented/on hold.

However, with the relaxing of regulations in late 2017 (please find more details in our news http://acrosspartners.com/2018/01/11/china-simplifies-approval-procedures-for-outbound-investments/ ) and several large scale M&A deals closing at the end of last year, we can foresee a figure around 130 billion USD total outbound investment in 2017.

(figure 2)

Most China outbound investment has been made through M&A, followed by green field investment. The experts said there were encouraging signals in outbound M&A, from the 19th Communist Party Congress that concluded in October.

Developments from the event, “clearly indicated that the Chinese government will continue to encourage overseas expansion,” Harsha Basnayake, Asia Pacific managing partner for transaction advisory services at EY said. He added that Chinese outbound deals will “be a significant play” in global mergers and acquisitions trends.

Others agreed: “We expect 2018 to be a strong year for China outbound M&A as all of the ingredients appear to be in place,” Colin Banfield, Citi’s Asia Pacific mergers and acquisitions head said during an interview with CNBC in late October. (reference https://www.cnbc.com/2017/11/12/chinese-ma-china-outbound-mergers-and-acquisitions-to-rise-in-2018.html )

Across Partners also believes in a continuously raising trend in China ‘ s outbound M&A. “We can expect a 25% annual growth in China’ s outbound FDI in the next three years, which means by 2020 the outbound FDI can reach 270 billion USD, and an increasing global share.” Hans Halskov, Managing Director of Across Partners estimates.