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26 Jun, 2013

China’s outbound investment at turning point: KPMG

By He Yini (Xinhua)

June 21, 2013 – Chinese overseas investments are being undertaken to move the county’s enterprises up the value chain, as these companies are increasingly looking to acquire targets in developed markets and upgrade R&D capabilities, according to a KPMG report.

The report, jointly released by KPMG and the China International Contractors Association recently, shows that although Asia remains the leading investment destination for Chinese enterprises, Europe and North America have shown noticeable growth over the last few years.

Statistics show Chinese investments in Europe have been growing at an annual rate of 111.2 percent between 2008 and 2011, and those in North America at 89.6 percent on average.

According to Vaughn Barber, head of the China Outbound KPMG Global China Practice, outbound investment is “the only way out” if domestic companies are to break through development bottlenecks by utilizing “domestic and international markets and resources”.

The key sectors for Chinese outbound investment have been overseas engineering and contracting projects, energy and mining, household appliances, automotive, and financial services, according to Barber.

He said that “agriculture and food products, renewable energy, real estate, and high-end manufacturing will emerge as new hot sectors”.

China’s outbound investments are still imbalanced in terms of investment regions and industries, and exhibit a tendency to invest in projects at the lower-end of the value chain,” said Diao Chunhe, head of the China International Contractors Association.

The country has witnessed a rapid economic growth amid reform and opening-up over the past few decades, propelling a large number of Chinese companies to expand into new markets, secure resources, and enhance their core competitiveness.

In 2012, the total value of outbound investments made by China’s non-financial enterprises reached $77.2 billion, representing a remarkable 44.3 percent compound annual growth over the period since 2003.

Meanwhile, Chinese companies’ overseas acquisitions have surged in the past few years, with an annual growth rate of 31 percent between 2005 and 2012.

However, the average deal size of acquisitions has come down as a result of an increasing number of small and medium-sized enterprises as well as privately owned ones beginning to participate in outbound investments.

According to the report, private enterprises have become an important force in China’s offshore investment wave, as they are considered more flexible and proactive in decision making.

“Supporting and guiding private enterprises to carry out orderly and sound overseas investments will not only promote quality growth and enhance core competitiveness of individual companies, but it will also be beneficial to improving the structure of the Chinese economy and diversifying the types of entities that are making outbound investments,” said Barber.

China’s overseas investments are at a tipping point, but “we expect to see another boom in outbound investment activity, further integrating the Chinese economy into the global economic landscape,” he added.