Investment growth triple that of GDP

China's outbound investment is expanding almost three times as fast as the nation's GDP, and the emphasis is shifting away from resources and toward the service sector and industry, a private equity firm said in a report on Dec 18.

A Capital, which has offices in Beijing, Brussels and Hong Kong, said that from January to September, China's ODI totaled $73 billion, up 20 percent year-on-year. The GDP growth rate for the period was 7.7 percent, the report said.

The firm said China's ODI is likely to equal inward foreign direct investment in the next three years, with an additional $500 billion in new outbound investment by 2016.

About 57 percent of Chinese ODI in the first nine months went into mergers and acquisitions, which rose 21 percent to $41.6 billion.

"It shows that the trend of going global is accelerating as the economic model changes," says Andre Loesekrug-Pietri, chairman of A Capital.

Investment in overseas resources projects and companies totaled $23.7 billion, up just 7 percent - and that even included the $15.3 billion takeover of Nexen Inc by CNOOC Ltd. That deal alone accounted for 63 percent of all resources M&A by value.

Investment in industry and the service sector rose 46 percent to $17.9 billion. The total was boosted by the acquisition of US-based pork producer Smithfield Foods Inc by Shuanghui International Holdings Ltd.

In the industry and services category, ODI in North America took up 40 percent, with 30 percent in Europe.

"Chinese investors are increasingly going for high added-value firms," Loesekrug-Pietri says.

The firm said that $24.7 billion was invested in M&A deals in North America in the first nine months, producing 60 percent of them.

Only 13.9 percent of all M&A deals went to Europe. And the value in the first three quarters dropped 25 percent to $5.8 billion. There were only two exceptions: ODI in Germany was up 72 percent, and investment in France was "stable", the report said.

"North America and Europe will be popular M&A destinations for Chinese investors in the coming years, because their industry and services sectors are very strong and companies in the regions are also open to Chinese investment," Loesekrug-Pietri says.

But as the economies in the US and Europe improve, it is become more difficult to do takeover deals, and being minority shareholders can be a wise choice for Chinese investors, he says.

State-owned enterprises remained the driving force, accounting for 75 percent of all M&A deals by value in the first nine months.

Private-sector companies' total M&A deal value rose 86 percent to $10.4 billion.

Alei Duan, managing director of financial advisory firm Abridge Capital International Ltd of London, says there is a big difference between M&A deals by Chinese SOEs and those by private businesses in Europe.

SOEs usually have the money to make big acquisitions, but such deals have slowed this year due to China's leadership change, he says.

"The change meant that SOEs must wait to hear new policies and directions. I think SOEs' acquisitions in Europe will increase next year."

Private Chinese companies are becoming more active in making acquisitions in Europe in both the manufacturing and service sectors.

"Many private Chinese companies are looking for good technology and products to take to China's domestic market," Duan says. That is because private companies cannot afford large deals, and they want to control risks by keeping transactions small.

Contact the writers at caixiao@chinadaily.com.cn and cecily.liu@chinadaily.com.cn

Staff at Shuanghui Group's factory in Henan province, the country's largest meat processor, which has bought Smithfield Foods for $4.7 billion. Provided to China Daily

(China Daily Africa Weekly 12/20/2013 page15)