China's outbound investment continued to decline amid the coronavirus pandemic, said EY recently.
The country’s overall outbound direct investment (ODI) of US$54.9 billion dropped 4.4% year-on-year in the first six months of the year, according to EY’s Overiew of China Outbound Investment in H1 2020.
Non-financial ODI amounted to US$51.5 billion in the said period, down 4.3% YOY while Belt and Road (B&R) non-financial ODI grew 19.4% against the downward trend, with ASEAN countries seeing strong growth, up 53.1% YOY, the report states.
China's overseas M&A hit the lowest value
Meanwhile, the announced overseas M&As of US$14.6 billion by Chinese enterprises fell by 40% year-on-year and is the lowest in the same period over the past 10 years, EY observed.
Asia was the most popular destination for Chinese enterprises, with announced deal value accounting for nearly 50% of the total, said the firm, adding that Saudi Arabia, Singapore and South Korea are the most favoured countries.
The country's overseas M&As in Europe continue to decline sharply, accounting for less than 20% of the total for the first time in the past seven years, the firm observed.
Sectors eyed by Chinese enterprises
Consumer, TMT and financial services sectors were the most popular for Chinese enterprises, according to EY.
Consumer sector was the most favoured, with M&A value increasing by 26% against the downward trend, accounting for 26% of the total, the company said.
Other key sectors include TMT and financial services, EY noted, adding that deal volume in financial services sector doubled YOY, among which 40% of the deals were in Asia.
In addition, overseas engineering, procurement and construction (EPC) continue to develop steadily, said EY.
The total value of newly-signed EPC contracts increased by 1.2% YOY to US$107.2 billion, with a number of big projects signed; EPC turnover was US$60.6 billion, down 13.8% YOY, the firm added.
Apart from business travel restrictions and the large uncertainties facing by the business valuation of target projects, geopolitical risks in some countries have also increased significantly, which affected the appetite of Chinese enterprises to invest overseas and make them more cautious in the decision-making process, Loletta Chow, Global Leader of EY China Overseas Investment Network pointed out.
Looking ahead to the second half of the year, the control of the pandemic and R&D progress of vaccines will be the key factors affecting investment activities, she said.
“We recommend that Chinese enterprises include geopolitical risk in their routine risk management framework, pay close attention to the changes of foreign investment policies in overseas countries, and focus more on Asian and Latin American countries, that have closer relations with China,” Chow noted.
In addition, Chinese enterprises should seize the development opportunities brought by digital technological revolution and the reshaping of global supply chains to accelerate companies’ transformation and optimise international strategies, she added.
