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As China’s economy struggles to recover from the pandemic, Chinese companies are seeking new growth opportunities, and many of them are finding them overseas.
Chinese companies such as social media giant TikTok and tech giant Lenovo have already become globally competitive giants with compelling products.
Some people are following in their footsteps. Electric vehicle manufacturer Consumer brands like BYD, Chery and Luckin Coffee. Alibaba As domestic growth slows, they are looking for opportunities outside China.
“The current economic climate, marked by increased competition and market saturation within China, is encouraging companies to explore and establish a presence in international markets,” Chris Pereira, founder and CEO of iMpact, a New York-based business consulting group that helps Chinese companies expand internationally, told Business Insider.
China’s outward investment in Belt and Road partner countries surges
According to the report, China’s outward investment is expected to grow by about 1% from 2022 to 2023, reaching about $150 billion in 2023. Professional services giant EY It was published in February.
While a total increase of 1% is not a large increase, the increase in investment was more pronounced in Belt and Road partner countries, where China’s non-financial outward direct investment increased by 22.6%. Asia has been the top destination for mergers and acquisitions by Chinese companies for the fifth consecutive year, according to EY.
The top three sectors where Chinese companies invested were technology, media and telecommunications, advanced manufacturing and mobility including electric vehicles, and healthcare and life sciences, which accounted for 53% of total investment by Chinese companies, according to EY.
To be sure, Chinese companies investing outside of China is nothing new. But what is new is their strategy. In the 2010s, Chinese companies were known for acquiring high-profile assets, including some well-known Waldorf Astoria Hotel in New York CityIt was sold to a Chinese insurance company in 2014 by ChemChina. Swiss agrochemical giant Syngenta 2016.
Not anymore.
Spending big on greenfield deals
Instead of M&A deals, Chinese companies are now preferring greenfield deals, where they set up subsidiaries in overseas markets and run operations from scratch. fDi Intelligence, Investment publications.
This means Chinese companies will set up facilities overseas under their own brands or subsidiaries — a strategy that works particularly well in industries where China already has an advantage, such as electric vehicles and EV batteries, according to fDi Intelligence.
This is Beijing “Made in China 2025” An industrial policy aimed at making China’s manufacturing capabilities internationally competitive.
The strategic shift comes in part as the Indian government tightens screening criteria for foreign direct investment, stoking geopolitical tensions. US, UK and EU governments To protect important and strategic industries.
In 2022, the German government It blocked Chinese companies from acquiring shares in two German semiconductor companies. They cited national security concerns and concerns about technology transfer as reasons.
So, despite rising overseas investment, China’s cross-border M&A deals are set to fall to $17.3 billion in 2022. This comes after several years of expansion in which investment volumes more than tripled from $54.4 billion in 2010 to nearly $201 billion in 2016, according to analysis by fDi Intelligence.
America is not loved very much
Another difference in China’s overseas investment strategy is geography.
Just a decade ago, China was among the top five investors in the United States.
Chinese companies are now shunning the U.S. in favor of markets in Southeast Asia, Europe and Africa, Pereira said.
“These regions offer high growth potential, favorable trade agreements and often a more welcoming regulatory environment,” he said.
Chinese investment in the United States has fallen from $46 billion in 2016 to less than $5 billion by 2022. Rhodium Group I have written In a September report.
The research firm added that China has become a “second-tier player” in the US investment climate, having been overtaken by countries such as Qatar, Spain and Norway.
Pereira said interest was declining due to escalating trade tensions, increased regulatory scrutiny and geopolitical factors.
But even in today’s complex geopolitical environment, Chinese companies are expected to continue venturing outside their home country, according to EY.
“Fueled by strong ambitions for development among companies, ‘globalization’ is expected to remain a key growth strategy for many Chinese companies,” Loretta Zhou, global leader of the EY China Overseas Investment Network, said in a February report.