Chinese companies are setting up shop everywhere except China – and the US

• Chinese companies are expanding overseas due to slowing domestic growth and market saturation.
• Growth was fueled by mergers and acquisitions in Belt and Road partner countries, which increased by 32%.
• Chinese companies now prefer greenfield deals over mergers and acquisitions.

As the Chinese economy struggles to recover from the pandemic, Chinese companies are looking for new growth opportunities – and many are finding them abroad.

Chinese companies such as social media giant TikTok and IT giant Lenovo are already globally competitive giants with attractive products.

Others are now following in their footsteps. This includes electric vehicle manufacturers BYD and Chery, as well as consumer brands such as Luckin Coffee. Even giants like Alibaba are looking outside China for opportunities as growth at home slows.

“The current economic climate, characterized by increasing competition and market saturation within China, is encouraging companies to explore and establish international markets,” said Chris Pereira, the founder and CEO of New York-based business advisory group iMpact – which helps Chinese companies go international – told Business Insider.

China’s foreign investment in Belt and Road partner countries soared

China’s foreign investment increased nearly 1% between 2022 and 2023, reaching nearly $150 billion in 2023, according to a report by professional services EY published in February.

While the overall increase of 1% is not a huge jump, the increase in investment was pronounced in the Belt and Road partner countries, where China’s non-financial outward direct investment rose 22.6%. According to EY, Asia remained the top destination for mergers and acquisitions by Chinese companies for the fifth year in a row.

The top three sectors in which Chinese companies invested were technology, media and telecom; advanced manufacturing and mobility, including electric vehicles; and healthcare and life sciences. According to EY, these three sectors account for 53% of total investments by Chinese companies.

Admittedly, it is not a new step for Chinese companies to invest outside China. But what’s new is their strategy. In the 2010s, Chinese companies were known for buying up high-profile assets. That includes the legendary Waldorf Astoria hotel in New York City, which was sold to a Chinese insurer in 2014, and ChemChina’s acquisition of Swiss agrochemical giant Syngenta in 2016.

That is no longer the case.

Spending money on greenfield deals

Instead of mergers and acquisitions, Chinese companies are now favoring greenfield deals – setting up subsidiaries in foreign markets and running the business from scratch, according to fDi Intelligence, an investment publication.

This means that Chinese companies will set up facilities abroad under their own brands or subsidiaries. According to fDi Intelligence, this strategy works especially well in sectors in China that already have a head start, such as electric vehicles and EV batteries.

It is also in line with Beijing’s ‘Made in China 2025’ industrial policy, which aims to make China’s manufacturing capabilities internationally competitive.

The change in strategy is partly due to increased geopolitical tensions resulting from the tightening of foreign direct investment screening criteria by the US, UK and EU governments to protect critical and strategic industries.

In 2022, the German government blocked Chinese companies from taking shares in two German chip companies, citing national security concerns and technology transfer concerns.

So even as outbound investment increased, Chinese cross-border M&A fell to $17.3 billion in 2022. That was after years of expansion, with investment more than tripling from $54.4 billion in 2010 to nearly $201 billion in 2016, according to fDi Intelligence analysis. .

The US doesn’t get much love

Another difference in China’s foreign investment strategy lies in its geographical location.

Less than a decade ago, China was among the five largest investors in the US.

Today, Chinese companies are bypassing the U.S. in favor of markets in Southeast Asia, Europe and Africa, Pereira said.

“These regions offer high growth potential, favorable trade agreements and often a more favorable regulatory environment,” he said.

Annual Chinese investment in America has fallen from $46 billion in 2016 to less than $5 billion in 2022, the Rhodium Group writes. in a September report.

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 said.

Pereira said interest has dropped due to increased trade tensions, tighter regulatory scrutiny and geopolitical factors.

But even in today’s complex geopolitical environment, Chinese companies are expected to continue venturing outside the home, EY said.

“Fuelled by the strong drive for development among companies, ‘going global’ is expected to remain a key growth strategy for many Chinese companies,” Loletta Chow, the global leader of EY China Overseas Investment Network, said in the February report.