HSBC Global Research: Economics : On the New Silk Road V: What Chinese companies are buying overseas

Stocks and Financial Services Press Releases Tuesday November 29, 2016 13:11
Bangkok--29 Nov--HSBC
China's overseas direct investment is surging despite weak global growth, as Chinese companies continue to internationalise their business
These investments are diversifying from resources and infrastructure into technology and consumer brands
Private sector companies are overtaking SOEs as the major outbound investors

It started with raw materials, moved on to infrastructure and manufacturing, and is now starting to focus on big-name consumer brands and high-tech companies. The patterns of China's overseas direct investment (ODI) are changing rapidly as the "new economy" consumer and services sectors gather momentum. Once dominated by large state-owned enterprises (SOEs) in search of iron ore and copper, China's ODI now features private sector giants buying US film studios and European fashion houses, alongside state-backed companies snapping up new technology firms.

This report looks at the changing patterns of China's ODI in terms of size, targets and geography, and the implications for the country's financial sector. It also provides an update on the ambitious One Belt, One Road initiative to create a New Silk Road. We find that:

China's ODI (non-financial) grew 53.7% in the first nine months of this year to USD134.2bn, exceeding the USD121.4bn for the whole of 2015.
Private sector companies accounted for 65% of total ODI during the first nine months of this year.
Europe and the US are now the favourite ODI destinations as Chinese companies seek to invest in technology and brands.
While infrastructure remains an important theme - One Belt, One Road was the key driver of 2015 ODI flows - manufacturing investment growth has accelerated in the past two years.

Multilateral financial institutions are playing a bigger role funding infrastructure projects along the New Silk Road. While China's policy banks have long played a supporting role, the country's commercial banks need to grab a larger slice of the pie as Chinese enterprises expand overseas.

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