Local Enterprises Have Become the Backbone of China’s Outbound Investments

China’s outward foreign direct investment (FDI) in 2016 rose 30% year-on-year to a record high of US$188.8 billion, according to EY’s 5th China outbound investment report.

Within this, local enterprises have grown and become the backbone of China’s outbound investments.

EY predicts that in 2017, China’s outbound investments is expected to steadily slow down, and Chinese enterprises will further strengthen their risk management capabilities to improve the quality of their investments.

In 2016, Chinese enterprises concluded 622 overseas M&A deals, totaling US$221.7 billion.

Technology, media and telecommunications (TMT), agriculture, power and utilities were the most attractive sectors for Chinese investors – and the total M&A value of these sectors accounted for nearly 54% of the total; Europe and North America continued to be China’s preferred destinations for outbound investment, and the “One Belt, One Road” (OBOR) initiative continued to drive M&A activities in Asia.

The report specifies that the global political and economic environment is likely to remain complex and unpredictable. Meanwhile, China’s economic growth rate continues to slow down, and last year’s renminbi exchange rate fluctuations prompted capital outflows.

Against this backdrop, Chinese authorities have deployed a series of new measures to enhance their control over “irrational” outbound investments. All these factors are bound to bring greater uncertainty to overseas investment of Chinese companies.

EY predicts that in 2017, the momentum of China’s outbound investments will steadily slow down. Also, in light of the growing risks, Chinese enterprises will enhance their risk management capabilities, and concentrate on the quality of their investments in order to achieve stable development.

The report underscores that in the long run, China’s policy of encouraging businesses to “go global” will remain unchanged. China will continue to support qualified and competent enterprises in carrying out strategic outbound investments, and encourage Chinese enterprises to participate in the OBOR initiative and international cooperation on industrial capacity.

Meanwhile, Chinese enterprises will keep a strong momentum for outbound investment in the high-tech, new energy and high-end industrial products sectors. In addition, Chinese enterprises may well focus on innovative economic areas such as the Internet, e-commerce, robotics and biotech sectors.

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