ODI mo­men­tum

China Daily (Hong Kong) - - FRONT PAGE - By CAI XIAO in Bei­jing and CE­CILY LIU in Lon­don

China’s out­bound in­vest­ment grew al­most three times faster than its GDP growth in the first three quar­ters.

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 Wed­nes­day.

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 added.

The firm said China’s ODI will likely 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,” said 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 surged 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,” said Loe­sekrug-Pi­etri.

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 noted.

“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,” said Loe­sekrug-Pi­etri.

But he added that as the economies in the US and Europe im­prove, it’s get­ting more dif­fi­cult to do takeover deals, and be­ing mi­nor­ity share­hold­ers can be a wise choice for Chi­nese in­vestors.

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 was up 86 per­cent at $10.4 bil­lion.

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

He said SOEs usu­ally have the money to make big ac­qui­si­tions, but such deals have slowed in 2013 due to China’s lead­er­ship change.

“The change meant that SOEs must wait to hear new poli­cies and di­rec­tions. I think SOEs’ ac­qui­si­tions in Europe will in­crease next year,” said Duan.

Pri­vate Chi­nese com­pa­nies are be­com­ing more ac­tive in mak­ing ac­qui­si­tions in Europe across 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 said. That’s be­cause pri­vate com­pa­nies can’t 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

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