EU flags Photo: VCG

 

Europe was the top destination for China's overseas merger and acquisition (M&A) deals by both value and volume in the first quarter this year, after falling behind Asia for three consecutive quarters, according to a new report by consulting firm Ernst & Young.

Europe and Asia were the most popular destinations for China's overseas M&A deals in the first three months of 2022, accounting for more than 70 percent of the total. 

The deal value in Europe reached $2.13 billion, down 74 percent year-on-year, while deal volume was down by 20 percent. By value, the investments were made mainly in Germany, Italy and the Netherlands, and in the healthcare and life sciences sector, the technology, media, and telecom (TMT) industry, and financial services, data from the report showed.

Investments in Asia, totaling $2.11 billion, were made mainly in India, Singapore and South Korea.

Benefiting from the steady and persistent progress of the Belt and Road Initiative (BRI), and increased demand for regional supply chain optimization under the Regional Comprehensive Economic Partnership (RCEP), the world's largest free trade deal, Asia is expected to continue to be a key region for China's outbound investment, according to the report.

China's outbound direct investment (ODI) rose 7.9 percent in the first quarter from a year earlier to reach $34.29 billion, data from the Ministry of Commerce showed.

Non-financial direct investment in countries along the BRI routes reached $5.26 billion, up 19 percent year-on-year, accounting for 19.5 percent of the total in the first quarter, an increase of 1.7 percentage points compared with the same period of the previous year.

Affected by both COVID-19 flare-ups and international complex conditions, the announced China overseas M&A value stood at $5.9 billion, a drop of 65 percent on a yearly basis and hitting a record single-quarter low, according to the EY report.

"China's GDP growth was generally stable in the first quarter, up 4.8 percent year-on-year. Yet, the evolving pandemic situation might further affect enterprises' operations. To sum up, the momentum of China's overseas M&As might continue to slow down, and global supply chains might be impacted by geopolitical factors," said Loletta Chow, global leader of the EY China overseas investment network.

Under those circumstances, more Chinese enterprises might consider green-field investment to keep up with the growing trend of getting closer to the consumer market, Chow added.

In recent years, China overseas M&A deals experienced higher volatility whereas China's ODI steadily developed, with more overseas green-field investment amid stricter foreign scrutiny of cross-border M&As. 

Looking ahead, the trend of participation by Chinese enterprises in the global industry chain will endure and Chinese overseas green-field investment will continue, according to Chow.

Global Times