1

Overview of China Overview of China outbound investment outbound investment in 2019in 2019

2

EY observationEY observation

By deal value, the M&A activities were dominated by technology, media and telecommunication (TMT), consumer products, and power and utilities sectors. By deal volume, the top three sectors were TMT, advanced manufacturing and mobility and consumer products

Asia was the most popular overseas M&A destination for Chinese enterprises, with the announced M&A deal value accounted for over 30% of the total. Except for Asia (up 19.1% YOY) and Africa (up 26.1% YOY), China overseas M&As in other continents declined in varying degrees, especially in Europe (down nearly 60% YOY) and North America (down nearly 30% YOY), hitting new lows since 2014 and 2012

The announced value of China overseas mergers and acquisitions (M&As) reached US$68.6 billion, down 31% YOY; 591 deals were announced, down 23.5% YOY. The YOY decrease in the M&A deal value and volume in Q3 and Q4 narrowed significantly

The total value of newly-signed China overseas engineering, procurement and construction (EPC) contracts increased by 7.6% YOY to US$260.3 billion, EPC turnover was US$172.9 billion, up 2.3% YOY; while the value of EPC contracts signed in Belt and Road (B&R) countries amounted to US$154.9 billion, accounting for 59.5% of the total, up 23.1% YOY

*TMT includes technology, media and telecommunication, media contains media and entertainment

China’s overall outward direct investment (ODI) amounted to US$117.1 billion, down 9.8% year-on-year (YOY); non-financial ODI was US$110.6 billion, down 8.2% YOY. With more balanced investment structure, investments mainly went to leasing and business service, manufacturing, wholesale and retail sectors

*2015-2018 statistics are based on data from China Outward Direct Investment Bul-letin announced by Ministry of Commerce (MOFCOM), National Bureau of Statistics of China, State Administration of Foreign Exchange

**2019 statistics are based on express data issued by MOFCOM on Jan 22nd of 2020, the reinvested earnings were not included completely

Source: MOFCOM

China’s overall ODI, 2015-2019 (US$ billion)

ODIODI► In 2019, China’s ODI continued to develop in a healthy and steady

manner. According to the MOFCOM, China’s overall ODI amounted to US$117.1 billion, down 9.8% YOY; non-financial ODI was US$110.6 billion, down 8.2% YOY

► With more balanced investment structure, the total ODI went to leasing and commercial services, manufacturing, wholesale and retail sectors

2015 2016 2017 2018 2019

150

100

50

0

200

145.7

196.2

158.3143.0

117.1

► In 2019, China overseas M&As remained prudent, 591 deals were announced, down 23.5% YOY, with a total value of US$68.6 billion, down 31% YOY

► But in Q3 and Q4, overseas M&As rebounded owing to increasing enthusiasm from Chinese enterprises, the declines in both deal value and volume narrowed sharply. In H2 2019, the announced value of overseas M&As by Chinese enterprises fell by only 2.8% YOY (down 55.9% YOY in H1 2019)

Announced China overseas M&As, 2015 - 2019 (US$ billion)

Source: ThomsonOne, Mergermarket, including data from Hong Kong, Macau and Taiwan area and deals have been announced but not yet completed; EY analysis

2015 2016 2017 2018 2019

200

150

100

50

0

250

89.4

223.8

139.6

99.568.6

M&AM&A

5

Sector analysis:Sector analysis:

► ► By deal value, China overseas M&As were dominated by TMT (US$15.1 billion), consumer products (US$13.1 billion) and power and utilities (US$9.5 billion) sectors, accounting for 54.8% of the total

► ► Amid the downward trend, the power and utilities sector achieved an increase of 121.8% YOY, which was driven by two mega deals by Chinese enterprises in Peru and Chile, reflecting the increasing presence of Chinese enterprises in Latin America

► ► Financial services sector (mainly in the wealth and asset management sector, accounting for nearly 60% of the total) increased 50% YOY, and more than 50% of the investment was in Asia

► ► By deal volume, TMT (122), advanced manufacturing and mobility (104), and consumer products (78) were the top sectors among Chinese investors, accounting for 51.4% of the total

By deal value (US$ billion):

By deal volume:

Top five sectors of China overseas M&As in 2019Top five sectors of China overseas M&As in 2019

Source: ThomsonOne, Mergermarket, including data from Hong Kong, Macau and Taiwan areas and deals have been announced but not yet completed; EY analysis

TMT

Financial services

Consumer products

Real estate, hospitality and construction

Consumer products

Advanced manufacturing and mobility

Power and utilities

TMT

Financial services

Real estate, hospitality and construction

15.1 13.1 9.5 8.6 8.4

122 5058104 78

(Growth Rate)

(Growth Rate)2.0%-26.1% -27.1% -10.8% -51.5%

121.8%-20.1% -29.4% 49.8% 12.1%

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Asia emerged as China’s No.1 overseas M&A destination, accounting for nearly 30% of the total investment. In the meantime, with a sharp decline in overall M&A value, Asia ($22.3 billion, up 19.1% YOY) continued to grow against the downward trend, key sectors were TMT, financial services and real estate, hospitality and construction

Geographical analysis:Geographical analysis:

The announced overseas M&As in Europe decreased significantly by 57.1% YOY to US$20.5 billion. It was the third consecutive year of decline and the lowest since 2014. Investments were mainly concentrated in sectors such as consumer products, TMT and financial services. The main investment destinations were the UK, Switzerland and Germany. In the meantime, the UK officially left the European Union on 31 January 2020, further reducing uncertainties for Chinese investment in Europe

China overseas M&As in North America continued to be affected by geopolitical risks and Foreign Direct Investment (FDI) resistance. In 2019, the announced value of China overseas M&As in North America were US$13.5 billion, down nearly 30% YOY, the lowest since 2012. Key sectors were TMT (mainly in media and entertainment sector, accounting for over 60% of the total), mining and metals and consumer products. However, with the easing China-US relations, Chinese enterprises’ investment in North America picked up in Q4, which rose 41% quarter-on-quarter, bringing the US back to the top destination of China overseas M&As for the year

Asi

aEu

rope

Nor

th A

mer

ica

Source: ThomsonOne, Mergermarket, including data from Hong Kong, Macau and Taiwan areas and deals have been announced but not yet completed; EY analysis

Top 10 destinations of China overseas M&As in 2019 (by deal value)Top 10 destinations of China overseas M&As in 2019 (by deal value)

6India India

US$US$3.33.3 3 SingaporeSingapore

US$6.3US$6.3

RankingRankingCountry

Deal value (US$billion)

55Peru Peru

US$US$3.83.8

1 US US

US$US$10.410.4

4 Australia Australia

US$US$4.54.5

2UK UK

US$US$9.39.3

1010ChileChile

US$US$2.42.4

7CanadaCanada US$US$3.23.2

8TThailand hailand US$US$33.1.1

9SwitzeSwitzerland rland

US$US$3.13.1

China overseas M&As by continent in 2019China overseas M&As by continent in 2019

AsiaAsiaUS$22.3

198

Latin Latin AmericaAmericaUS$7.1

12

AfricaAfricaUS$0.3

11

Europe Europe US$20.5

210

ContinentContinentDeal value (US$billion)

Deal volume

North North America America US$13.5

101

OceaniaOceaniaUS$4.9

59

EPC► The total value of newly-signed China overseas EPC contracts increased by

7.6% YOY to US$260.3 billion, EPC turnover was US$172.9 billion, up 2.3% YOY

► while the value of EPC contracts signed in B&R countries amounted to US$154.9 billion, accounting for 59.5% of the total, up 23.1% YOY

► Moreover, among the EPC contracted by Chinese enterprises, there were 506 projects with contract value over US$100 million, up 8.4% YOY. China overseas EPC enterprises has created nearly 800,000 jobs for the host countries, driving China’s equipment and materials exports to exceed US$14 billion

Value of newly-signed China overseas EPC contracts, 2015 - 2019 (US$ billion)

0

150

200

300

Source: MOFCOM

2015 2016 2017 2018 2019

50

210.1244.0

265.3241.8

260.3250

100

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