The rise of private firms in China outbound direct investment

The rise of private firms in China outbound direct investmentSep. 27 – For the first time, Chinese private firms surpass State-owned corporations that providing 65.3% of China outbound direct investment (ODI), China’s private firms investors growing presence abroad significantly, and it has becoming primarily major force in China outbound direct investment in recent years, China ODI led for first time by private firms, according to a government report recently.

China outbound direct investment primarily dominated by private firms. The power of China’s private enterprises have growing stronger and dynamic ever than before in China outbound investment, it is a far-reaching new development, attract attention from international investment institutions, researchers, and government officials. At present, China Private enterprises are leading in both the amount invested and the number of mergers and acquisitions abroad, officials said. The change has taken place as outbound direct investment surpassed foreign direct investment last year, also a new phenomenon. Private companies account for 65.3 percent of the total ODI, which amounted to $145.7 billion by the end of last year, according to the 2015 Statistical Bulletin of China’s Outward Foreign Direct Investment. Meanwhile, ODI surged by more than 18 percent last year, exceeding the $135.6 billion in foreign direct investment, said the report, jointly issued by the Ministry of Commerce, the National Bureau of Statistics and the State Administration of Foreign Exchange.

The rise of private firms in China outbound direct investment in fast pace, the upward trend is clearly underway for some time, China’s private firms growing investments presence abroad. Several large scale acquisitions have already closed on September, 2016, for example 30 million pounds in acquisition of 6 solar power plants in UK by China’s United PV on 23 September, 2016, this acquisition is known by the public as the first overseas acquisition of new energy asset by Chinese enterprise after Brexit. The RMB290 million acquisition of property acquisition in London’s financial center by China Minsheng Investment Group on 18 September, 2016. China’s Fosun acquires German private bank Hauck & Aufhäuser on September, 2016.

From the statistics fact that private deals in merger and acquisitions showed solid steady growth, China private firms expanded its influences through China outbound investment on the global scale. “The private companies have really become an important force in driving the growth of outbound investment,” said Zhang Xiangchen, deputy international trade representative at the Ministry of Commerce, at a news conference. Private deals account for 75.6 percent of the total amount of overseas acquisitions, Zhang added. Huge, privately owned companies that are on a foreign shopping spree to either upgrade their technology or diversify their business are behind the shift. One frequent shopper, Chinese aviation and shipping conglomerate HNA Group, bought total foreign assets worth at least $17 billion last year.

Chinese firms now operate at a record pace in at least 15 of the 28 member countries in the EU, the rising position of private sector investors is distinguished trend, and the target of Chinese investors is continuing shifting, the number of large-scale acquisitions in energy and materials has declined; but food, commercial real estate and technology has risen and drove the total investment value to a whole fresh record high, according to related research reporting, the new momentum behind raising power of private firms in China outbound direct investment is spurred by changing commercial realities that are forcing Chinese firms to look abroad. This year, the private enterprise advanced its global expansion ambitions with additional acquisitions that included a 13 percent stake in the airline company Virgin Australia Holdings, with an investment of $114 million. Even though State-owned enterprises still have a competitive edge over their private peers in such highly regulated industries as electricity, energy and mining, that has not dimmed the enthusiasm of private companies for overseas growth. Wang Huiyao, director of the Center for China and Globalization in Beijing, said that private companies tend to be flexible and able to respond quickly to the changing environment overseas.

“The private sector contributes more to ODI because the sector itself is growing and getting larger. Meanwhile, the national anti-corruption campaign has slowed the State sector’s process of going global, because those enterprises have to adjust their strategies due to the introduction of new executives and leaders,” he said. As Chinese companies spend more overseas, the government is taking more measures to ensure the security of assets and the growing number of Chinese working abroad, which already has reached 1 million, said Zhang of the Commerce Ministry. “We are producing guides to foreign investment and risk assessment reports every year to assist Chinese investment in guarding against risks,” he said. “We are also encouraging Chinese investors to bolster their risk management abilities and buy insurance in case of losses or damage,” he said.

In the earlier years, China outbound direct investment was limited to acquiring natural resources and building the infrastructure needed to boost cross-border trade. These motives are now fading, as a move in the growth model is pushing Chinese private firms to upgrade their technology, follow higher levels of the value chain previously passed to foreign firms. Investments abroad are an ideal solution which developed economies offer the assets, regulatory environment, and workforce that Chinese private sectors are looking for. As a result of this shifting reality, China private sectors investment flows destined for developed economies will continue to grow strongly in the years ahead. For An Update Report on China’s Private Firms Outbound Investment – Mergers & Acquisitions in Europe available upon request, please contact DCCC, or email to: info@dccchina.org