China’s outbound foreign direct investments (FDI) hit a historic high in 2012 to become the world’s third largest investor after the United States and Japan. In 2013, China’s outbound FDI achieved a 34% year-on-year growth from US$31.34 billion in 1H 2012 to US$42.12 billion in 1H 2013.
By 1H 2013, North America, Europe and Asia are the top destinations for China’s outbound investments. In terms of sector, energy and metals are the largest ones valued at US$301.1 billion, accounting for 70% of the total value of China’s outbound FDI during 2005-1H 2013.
Outbound FDI in agriculture and technology sectors saw a drastic increase, now representing 15% of total value of outbound FDI in 1H 2013 vs 4% in 2009.
“Outbound investments from China’s private companies are accelerating; private companies are looking overseas for more opportunities of sales channels and brand investments, as well as for opportunities to expand core businesses," says Loletta Chow, EY Global COIN Leader. "On a global scale, agriculture, technology and consumer products sectors are likely to see an unprecedented surge of Chinese investment in the next few years."
Looking at M&A activities in 2013, mining and utilities have experienced significant increases in value for the first 8 months of 2013 compared with last year, having recorded nine mega deals above US$100 million.
“Resources (energy and mining) continues to be the No. 1 industry in both deal number and deal value. Such a trend is expected to continue in the foreseeable future,” says Eleanor Wu, China Outbound Investment Transaction Advisory Services Leader.
COIN also saw tax planning taking an increasingly active role when structuring an overseas investment. Illustrating the key success factors for good tax planning, Andrew Choy, International tax services partner, Greater China, suggests, “tax planning has become a crucial factor in securing success of an overseas investment."
Choy adds that investors need to be aware of the latest tax legislation developments, and possess a good understanding of the interplay between the relevant foreign countries and China tax considerations. “Involving professionals at an early stage could also lower the risk, while achieving higher benefits.”
Given the current global tax landscape, the environment for MNCs conducting cross-border planning is getting tougher. However, that could be considered both good and bad news in terms of how this may impact China’s outbound investment.
For instance, some countries are reducing their corporate income tax rates to make their local economies more competitive, while others are tackling base erosion and profit shifting, and imposing higher penalties for aggressive tax planning.
Fabian Wong, EMEIA COIN Co-Leader, adds, "There is a heightened awareness of the current global tax landscape among Chinese investors. We have seen a rising number of Chinese companies revisiting their regional tax structure to enhance their positions in the market and their presence in Europe."
“Outbound investment activities help Chinese companies gain access to more advanced technology and best practices, boost productivity and reduce excess capacity in certain sectors,” Fernanda Chang, South America COIN Leader, comments.
To achieve the goals of technology upgrades and productivity improvement through enhanced self-innovation capacity, going global is, therefore, a necessity for sustainable developments.