As China’s economy struggles to recover from the pandemic, Chinese companies are looking for new growth opportunities — and many are finding them overseas.Chinese companies like social media giant TikTok and IT giant Lenovo are already globally competitive behemoths with compelling products.Others are now following in their footsteps. They include electric vehicle-makers BYD and Chery, as well as consumer brands like Luckin Coffee. Even behemoths like Alibaba are looking outside China for opportunities as growth slows at home.”The current economic climate, characterized by increasing competition and market saturation within China, incentivizes companies to explore and establish a presence in international markets,” Chris Pereira, the founder and CEO of New York-based business consulting group iMpact — which helps Chinese companies go international — told Business Insider.China’s outward investment surged in Belt and Road partner countriesChina’s outward-bound investment increased nearly 1% from 2022 to 2023, hitting nearly $150 billion in 2023, according to a report professional services giant EY published in February.While the 1% total increase is not a big jump, the increase in investment was pronounced in Belt and Road partner countries, where China’s non-financial outbound direct investments rose 22.6%. Asia remained the top destination for mergers and acquisitions by Chinese enterprises for the fifth straight year, per EY.The top three sectors Chinese companies invested in were technology, media, and telecom; advanced manufacturing and mobility, which includes electric vehicles; and healthcare and life sciences. These three sectors account for 53% of total investments by Chinese companies, per EY.Admittedly, it’s not a new move for Chinese companies to invest outside of China. But what is new is their strategy. In the 2010s, Chinese companies were known for buying up high-profile assets. That includes the storied Waldorf Astoria hotel in New York City, which was sold to a Chinese insurer in 2014, and ChemChina’s takeover of Swiss agrochemical giant Syngenta in 2016.That’s not the case anymore.Splurging on greenfield dealsInstead of M&A deals, Chinese companies now prefer to do greenfield deals — where they set up subsidiaries in foreign markets and operate the business from the ground up, according to fDi Intelligence, an investment publication.
This means Chinese companies will set up facilities overseas under their own brand or subsidiaries. This strategy works particularly well in industries in China that already have an edge, such as electric vehicles and EV batteries, per fDi Intelligence.It’s also in line with Beijing’s “Made in China 2025″ industrial policy that aims to make China’s manufacturing capabilities competitive internationally.The strategy shift is partly due to heightened geopolitical tensions following the tightening of foreign direct investment screening criteria by the US, UK, and EU governments to safeguard critical and strategic industries.In 2022, the German government blocked Chinese companies from taking stakes in two German chip companies, citing national security concerns and concerns over technology transfer.So, even as outbound investments rise, Chinese cross-border M&A transactions slumped to $17.3 billion in 2022. That was after years of expansion, which saw investment more than triple from $54.4 billion in 2010 to nearly $201 billion in 2016, per fDi Intelligence’s analysis.The US is not getting much loveAnother difference in China’s overseas investment strategy lies in geography.Less than a decade ago, China was one of the top five investors in the US.Today, Chinese firms are skipping the US in favor of markets in Southeast Asia, Europe, and Africa, said Pereira.”These regions offer high growth potential, favorable trade agreements, and often, a more welcoming regulatory environment,” he said.China’s annual investment in America dropped from $46 billion in 2016 to less than $5 billion in 2022, the Rhodium Group wrote in a report in September.China has become a “second-tier player” in the US investment landscape, having been surpassed by countries such as Qatar, Spain, and Norway, the research firm added.Pereira said interest has fallen due to increased trade tensions, stricter regulatory scrutiny, and geopolitical factors.But even in today’s complex geopolitical environment, Chinese companies are expected to continue venturing away from home, per EY.”Fueled by the strong drive for development among enterprises, it is anticipated that ‘going global’ will continue to be a key growth strategy for many Chinese companies,” Loletta Chow, the global leader of EY China Overseas Investment Network, said in the February report.
