Three main drivers of Chinese overseas expansion

Investments will grow in frequency, but with smaller average deal sizes.

China's overseas investments will continue to both grow and evolve, with significant implications for global industry

Chinese government scrutiny of overseas investments has ramped up since the end of 2016 and this has significantly curbed the boom in outbound mergers and acquisitions (M&A) that took place over 2014-2016. Chinese outbound M&A grew by 83.3% year-on-year (y-o-y) per quarter between Q314 and Q216, peaking at USD199bn in Q216. Since mid-2016, growth has collapsed due to more stringent capital controls that have made it harder for Chinese companies to move money out of the country.

BMI reported that despite a slowdown in total value growth, the structural uptrend in Chinese overseas investment will not be derailed. Instead, investments will continue to grow in frequencies.

Resource security, infrastructure along the Belt & Road, and a push into higher technology remain as the three main drivers of Chinese overseas expansion, that will have significant implications for the global industry.

Chinese overseas commodity investment will be on a smaller scale and a more selective basis than has generally been the case over the past decade. Chinese commodity investment abroad will focus on select commodities, including cobalt, copper, gold, iron ore, lithium, nickel, oil, and natural gas. Dominant existing commodities suppliers to China will see greater competition in the future. However, commodity security remains a persistent driver because of an implicit aspect of the Belt & Road initiative.

B&R paves the way for a significant uptick in the international exposure of Chinese companies, particularly in infrastructure and construction. Chinese firms will dominate projects along the B&R route as many Chinese firms have built up sufficient technological capacity in recent years through both acquisitions and partnerships. This will open opportunities for facilitating hubs as Hong Kong and Singapore position themselves as financing and advisory hubs while Chinese companies seek to expand to new markets.

"We expect creeping protectionism against the acquisition of high-tech firms by Chinese firms, particularly in Europe, North America, South Korea and Japan. For instance in Europe, a doubling of Chinese M&A deals in the region over 2016 has encouraged Germany, France and Italy to jointly present the European Commission with a common position in February that would allow member states in the eurozone to block company takeovers by non-eurozone investors," BMI said.