The shift in global political and economic order, plus China’s effort to curb capital flight may pose uncertainties for Chinese outbound foreign investment this year, but strategic acquisitions and Belt and Road-related investments by Chinese companies are expected to remain buoyant, according to the 2017 Outbound Investment Guide for Chinese Businesses released by Deloitte.
In 2016, China's non-financial outbound foreign direct investment hit a record high of US $170.2 billion, up 44.1% from the previous year, and it was dominated by merger and acquisitions in the manufacturing industry, accounting for 26.6 percent of the total deal volume. This was followed by the telecommunications, software and information technology sector (14.7 percent).
The year was also characterized by large and mega deals, where there was the strongest growth in the number of deals worth more than US$1 billion.
"China's traditional industry sectors have endeavored to achieve business upgrades through technological and management innovation, and the 'new economy' has become a main driver of growth. More Chinese businesses are therefore looking to 'go global' to acquire technology, as well as well-developed brands and channels," said Rosa Yang, Chairperson of the Global Chinese Services Group, Deloitte.
New hot spots
Under the Chinese government's initiatives, countries in the Belt and Road region are emerging as new hot spots for Chinese outbound foreign investment, especially in Southeast Asia and South Asia because of their huge market potential.
Looking ahead into 2017, Deloitte predicts a fall in the number of sizeable deals due to the anticipated efforts by the Chinese government to combat capital flight, which will also have a negative impact on cross-industry acquisitions. Western Europe and North America will continue to be the largest recipients of Chinese outbound investment, but new political leadership in key economies of the the two regions would translate into adjustment of their trade relation with China.
Despite these changes, it has become an irreversible trend for Chinese companies to continue investing in overseas markets, and the Chinese government will continue to encourage strategic foreign investment by Chinese businesses as a way to optimize its economic structure. In 2017, Chinese companies will remain aggressive in acquisitions, which are directly related to their core business and have the objective to gain mature technology and supply chain resources.
M&A activities related to smart manufacturing, the digital economy and consumption upgrade are expected to take centre stage for China’s outbound foreign investment this year.
"The year 2016 was marked by a series of 'black swan' events signaling a drastic change in the current course of globalization. However, we see it as not so much the end, but a new chapter of globalization," said Sitao Xu, Chief Economist at Deloitte China. "In this new turn of globalization, we believe that China will undergo a transformation—from passively participating in the global division of labour to actively reshaping the global value chain."