China’s global investments set for ‘rapid growth’, despite first-half fall

Out-Law News | 24 Sep 2014 | 10:37 am | 2 min. read

Chinese outbound investment fell sharply in the first half of 2014 compared to the same period last year, according to data compiled by the US-based Heritage Foundation .

By the end of June, Chinese companies had spent a combined total of $39 billion on overseas mergers, acquisitions and greenfield projects, down from $46bn in the same period a year earlier, the Foundation said. Some analysts have reportedly cited a lack of major Chinese offshore energy investments this year, due in part to tough anti-corruption measures, as among the reasons for the decline.

However, professional services firm PwC is forecasting future “rapid growth in Chinese foreign investment globally”. PwC's Andrew Parker said China’s overall outbound investment globally is increasingly focused on the hi-tech, real estate and telecommunications sectors, which now account for 36% of total mergers and acquisitions (M&A).

China’s outbound M&A in these sectors accounted for “barely 1%” over the past couple of years, Parker said.

Chinese government officials are on the record as saying that China is looking to spend some $500 billion on foreign M&A in the next five years, Parker said. “China's industrialisation and urbanisation is estimated to be worth $10 trillion over the same period.”

Parker said: "Even accounting for future short term dips in growth, we expect China's need to seek diversity for its maturing economy is increasing.” He said this is a “long-term trend of fundamental importance” to countries such as Australia.

Australia is at a “critical juncture” in relation to Chinese foreign investment and it is “imperative that foreign investment settings accommodate China’s growing needs”, Parker said. “We expect privately owned enterprises will increasingly flex their muscle in global M&A. China's investment appetite is still large, it is still growing, but it is changing and that is something that is happening very, very quickly.”

According to China’s state run Xinhua News Agency, official figures published earlier this month showed China's outbound direct investment (ODI) reached a record high of $108bn in 2013, “making it the world's third largest investor for the second year”.

The amount was a 22.8% increase on the previous year, said Xinhua quoting a report from the Ministry of Commerce, National Bureau of Statistics and State Administration of Foreign Exchange.

Xinhua said: “At the end of 2013, the accumulated ODI by Chinese companies stood at $660bn, ranking China 11th in the world. Chinese investors have established about 25,400 overseas enterprises in 184 countries and regions.” The leasing and business service, finance, mining, wholesale and retail and manufacturing sectors accounted for 83% of the overall investment, Xinhua said.

The deputy head of the MOC’s Department of Outward Investment and Economic Cooperation, Fang Wei, told Xinhua that the purchase by Chinese oil company CNOOC of Canada's Nexen, for $14.8bn, was the largest among the investment projects last year.

The ‘World Investment Report 2013’, published by the UN Conference on Trade and Development (UNCTAD) (264-page / 2.18MB PDF), said Chinese foreign direct investment (FDI) stock in Africa at the end of 2011 stood at $16bn. South Africa was the leading recipient of Chinese FDI, according to UNCTAD.