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Embarking on the journey to a new era of opening-up 2018 Deloitte Outbound Investment Guide for Chinese Businesses Global Chinese Services Group | June 2018
2018 Deloitte Outbound Investment Guide for Chinese Businesses
Foreword 1
Part I – Overview 4
Retrospect and Prospect of Chinese Economy 4
Retrospect and Prospect of Chinese Outbound Investment 5
Greater China Outbound M&A Review 9
The Belt and Road Initiative to Drive a New Chapter of Globalization 15
Considerations and Preparations before Chinese Outbound Investment 17
Part II– Go Global with Chinese Companies 20
Challenges and Solutions for Chinese Outbound Investment 20
Deloitte Provide One-stop Solutions for Chinese Outbound Investment 25
Contact us 34
2
2018 Deloitte Outbound Investment Guide for Chinese Businesses
Foreword
Deloitte opened its first China office in Shanghai as early as 1917, becoming one
of the first foreign accounting organizations to establish a presence in China. Last
year, Deloitte China celebrated its 100th anniversary. Over the past 100 years,
Deloitte China is committed to making an impact that matters to clients, people and
society, and has grown into a leading professional services organization with more
than 13,000 people in 22 offices across Chinese Mainland, Hong Kong, Macau and
Mongolia. Deloitte's journey in China is an epitome of China's social and economic
development. Today, China is the world's second largest economy with a net capital
outflow. With Chinese investors' footprints expanding all around the globe, the
number of Chinese companies listed on 2017 Fortune Global 500 surged to 115
from 11 in year 2000.
In addition to providing quality services to high-growth domestic market, Deloitte is
committed to helping Chinese companies penetrate and lead the global markets.
Based on this concept, Deloitte Global Chinese Services Group (GCSG) was
established in 2003 to support Chinese companies to expand globally and move
up the value chain. The guide was jointly compiled by Deloitte China and Deloitte
Global Chinese Services Group professionals with local expertise. We hope that the
guide could help Chinese companies engage in and make a greater impact in the
global market, and become world-class multi-national companies.
Patrick Tsang
Deloitte China CEO
Over the past decade, "Going Global" has been the compelling force for China's
economic transformation and the steering guidance for Chinese enterprises'
expansion overseas. An increasing number of Chinese enterprises investing
heavily overseas, establishing globalized industrial chain and value chain.
Meanwhile diversified challenges set in during the globalization. Now is the
time to not only go global, but to go well enough and steady enough so as to
materialize the verily internationalized operations and become the truly world-
class enterprises with global competencies.
In pursuit of service excellency during the process of Chinese enterprises
going global, Deloitte deploys Chinese-speaking professionals across its global
network to provide professional advisory and assistance anywhere, anytime.
This Guide earmarks our efforts and sincerity to go global with you, and may
you find it helpful for your globalization road map!
Vivian Jiang
Deloitte China Deputy CEO
Deloitte China Markets & Global Network Leader
1
2018 Deloitte Outbound Investment Guide for Chinese Businesses
China is making strides in transforming its economy - quality of growth has been
the mantra this year. Meanwhile, synchronized recovery in developed countries
has shown a positive prospect for global growth. In the New Era, China will play
a more active role in updating the international economic and trade order – not
only learning from others' strong points but also embracing open innovation in
the process of going out. The perspectives on Chinese economy and outbound
investment in this guide are based on Deloitte's long-term study on the macro
and industry trends, as well as deep communication with clients from all walks
of life.
Sitao Xu
Chief Economist at Deloitte China
An increasing number of countries and organizations are actively involved in
the Belt and Road (B&R) Initiative to promote its deep development across the
globe. Now, the Initiative looks beyond the infrastructure projects, expanded
to other diverse industries and sectors in destination countries. While Chinese
State-owned Enterprises took lead in the Initiative at the early stage, more
private and foreign-funded enterprises are taking parts. It is suggested that
the B&R Initiative has driven a new chapter of Chinese outbound investments,
during which the overseas investment will witness a continuous growth in value
and, more importantly, quality and structure improvement. To move up the
value chain, Chinese companies shall strengthen their global competitiveness
and resources allocation, and enhance risk management control. This guide
offered investment overviews of countries and regions alongside the B&R, as
well as key concerns of Chinese outbound investments. Hopefully this guide
can be of assistance to companies considering entering or expanding their
businesses in the overseas markets.
Norman Sze
Deloitte Belt and Road Services China Leader
Deloitte Northern Region Managing Partner
2
2018 Deloitte Outbound Investment Guide for Chinese Businesses
As a trusted business advisor, Deloitte is fully committed to understanding and
addressing the business needs and concerns of Chinese outbound investors.
Our professionals possess the hands-on outbound experience, in-depth sector
knowledge as well as on-the-ground understanding of local market practice
advising them throughout the process of the transaction or project. Leveraging
the global network of Deloitte, we are devoted to providing one-stop and high-
quality multidisciplinary services in connection with their outbound investments
regardless of their destination countries from sourcing to execution, from
negotiation to integration.
This guide provides advice and solutions for Chinese outbound investors to
address their complex business challenges, shares Deloitte's distinctive Belt
and Road Initiative services and our dedicated outbound investment team. This
guide is hopefully to assist Chinese companies in identifying right strategies to
guide their over-all investment journey.
Derek Lai
Vice Chair of Deloitte China
Deloitte Global FA Belt & Road Leader
Deloitte deployed dedicated teams of professionals possessing Chinese
speaking capabilities and knowledge about China and Chinese companies to
provide professional advice and comprehensive solutions to Chinese companies
globalization. We are committed to expanding our footprints as our clients
expand theirs. To stay ahead of the curve in putting the needs of clients as
our priority, we continue our efforts in evolving and adapting to the changing
dynamics of the marketplaces, and provides advice and solutions to clients to
address their complex business challenges.
2018 Deloitte Outbound Investment Guide for Chinese Businesses, released
in the joint efforts of Deloitte Global Chinese Services Group and Deloitte
professionals across the globe, aims to provide insights on Chinese economy
and outbound investment overview and outlook, solutions to outbound related
business challenges, and highlights of selected countries as hot destinations.
We hope this guide will be of great help to you and please feel free to contact us
if professional advice on Chinese outbound investments are needed.
Rosa Yang
Deloitte Global Chinese Services Group Chairman
Deloitte Global Network Affairs Managing Partner
3
2018 Deloitte Outbound Investment Guide for Chinese Businesses
Part I – Overview
1.Retrospect and Prospect of a comparable performance in 2018. unsustainable in the medium term.
Chinese Economy Therefore, it makes good sense for China will be tested when the cyclical
Embracing a lower growth target China to embrace a slower GDP momentum starts losing steam.
The closely-watched 19th Party growth target. In short, GDP growth shall slow down
Congress has resulted in some clarity in 2018. Considering the tightening
on economic policy. As expected, Economic growth certainly comes of labour market, China should lower
certain landmark years (e.g. 2020, with costs (e.g. exploding credit its expectation on GDP growth (to
2035, and 2050) were given additional growth). Indeed, the new mantra, 6.0% or even lower). Deleveraging
weight with regard to economic coined by President Xi regarding will become more urgent given the
and social welfare targets. However, the ‘mismatch between uneven Federal Reserve's tightening policies
the GDP growth target has been development and people's desire and the decision made during Trump's
deemphasized. This is a welcome for a better life’, suggests that visit to China, which would limit the
development given that de-leverage policymakers had become to realize domestic credit growth and lead to
and SOE reforms can only proceed that economic development was not further opening of financial industry
against a backdrop of slower growth. panacea for everything. We believe (the foreign investment proportion
Looking at the contributions from that China's economic resilience is in securities companies, fund
the property sector and exports in extremely undervalued; however, the management companies and future
2017, it would be too much to expect current growth rate (around 6.5%) is companies will increase to 51%).
Figure 1 Growth pressure of exports and real estate investment under high base
China's exports: YoY Investment of property development:
OECD composite leading indicator (right) cumulative YoY
Commercial housing sales area: cumulative
(% ) (%) YoY (right) (%)
60.00 100.60 12.00 40.00
100.40
30.00
40.00
100.20 9.00
20.00
20.00 100.00
99.80 6.00 10.00
0.00 99.60
0.00
99.40 3.00
-20.00
-10.00
99.20
-40.00 99.00 0.00 -20.00
2015-01
2015-04
2015-07
2015-10
2016-01
2016-04
2016-07
2016-10
2017-01
2017-04
2017-07
2017-10
2018-01
2015-02
2015-05
2015-08
2015-11
2016-02
2016-05
2016-08
2016-11
2017-02
2017-05
2017-08
2017-11
Source: Wind, Deloitte Research
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2018 Deloitte Outbound Investment Guide for Chinese Businesses
2.Retrospect and Prospect of Under the guidance of the B&R
Chinese Outbound Investment Initiative, Chinese enterprises are
Despite the global slowdown of capital accelerating their globalization.
flow, China’s overseas investment In 2017, MOFCOM and the major
kept a strong growth momentum provincial commerce administrative
with the boost of B&R Initiative and departments recorded and
International Capacity Cooperation. approved 6,172 overseas investment
According to World Investment Report enterprises, and staffs deployed
2017 published by UNCTAD, in 2016, overseas reached 1 million, indicating
global foreign direct investment flow China’s significantly improved
fell by 8.9% to US$1.45 trillion. In spite internationalization.
of this, China still stood out as the
second largest investing country in The Belt and Road Initiative drives
the world. Total investment outflow a new chapter to deepen all-round
of China increased by 34.7% in 2016 cooperation as well as investment
to US$196.15billion, accounting for and trade development
13.5% of global outbound investment, In 2017, total value of non-financial
exceeding 10% for the first time. direct investment from Chinese
Since ODI outnumbered FDI for the companies to 59 countries along the
first time in 2015, China has become Belt and Road reached US$14.36
a net capital exporter in terms of billion, accounting for 12% of total
two-way direct investment. In 2016, non-financial direct investment of the
the gap between ODI and FDI further period, up by 3.5%. Main investment
widened, with net capital outflow hotspots include Singapore, Malaysia,
achieving US$62.45 billion. Indonesia, Pakistan, Vietnam, Russia,
UAE and Cambodia etc. There were
Figure 2 Proportion of China’s ODI flow to global ODI flow grew rapidly
16.0%
14.0% 13.5%
12.0%
9.9%
10.0% 9.1%
8.0% 7.6%
6.7%
6.0% 4.8%
4.0%
2.0%
0.0%
2011 2012 2013 2014 2015 2016
Source: MOFCOM, "2017 World Investment Report" by UNCTAD, Deloitte Research
5
2018 Deloitte Outbound Investment Guide for Chinese Businesses
in total 62 M&A transactions along Outbound investment plummeted year growth of 8.7%, among which the
the B&R totaling at $8.8billion, with due to supervision, no new number of projects with value over
year-on-year growth of 32.5%. Among projects in sensitive industries US$50 million reached 782, adding up
them, the largest deal is China In 2017, irrational outbound to US$197.74 billion, taking up 74.5%
National Petroleum Corporation investment was curbed by the of the total value of the newly signed
(CNPC) and China Energy Company government as non-financial direct contracts. The value of export driven
Limited (CEFC)’s joint acquisition of investment in 174 countries and by foreign contract projects was
a 12% stake in Abu Dhabi National regions, 6,236 overseas companies US$15.39 billion.
Oil Company (ADNOC) for US$2.8 amounted to US$120.08 billion, a year-
billion. The turnover of the overseas on-year decrease of 29.4%. In terms Outlook of China Outbound
contracted projects along the B&R of the composition, investment in Investment
amounted to US$85.53 billion, up equity and debt instruments reached In November 2017, Premier Li Keqiang,
by 12.6% year-on-year, taking up US$102.08 billion, a year-on-year pointed out that “It is estimated that
50.7% of the turnover of all overseas decrease of 32.9%, accounting for 85% in the coming five years, China will
contracted projects during the same of all investment. Reinvested income import US$8 trillion worth of goods,
period. The total value of the newly achieved US$18 billion, equalling receive US$600 billion of foreign
signed contracts along the B&R the investment last year, accounting investment, and make US$750 billion
reached US$144.32 billion, up by for 15% of all investment. Foreign of outbound investment. And there
14.5% year-on-year, occupying 54.4% investment mainly flows into leasing will be 700 million visits by Chinese
of the total value of all newly signed and business services, wholesale and tourists to overseas destinations”
contracts in the same period. retail, manufacturing and information at the 20 th ASEAN Plus China, Japan
transmission, and software and IT and ROK Summit. By "Going Global",
Economic and trade cooperation services, accounting for 29.1%, 20.8%, Chinese companies could realize their
along B&R was competitively effective. 15.9%, and 8.6% of all investment shortcomings in local operations,
In 2017, China’s trade with the Belt respectively. There were no new learn from others strengths and close
and Road countries reached up to projects in real estate, sport and the gap in between. Complement
7.4 trillion yuan with year-on-year entertainment due to government resources with capabilities is
growth of 17.8%. Construction of restristion. the top demand for outbound
major projects has also progressed. investment. Considering global
The Mombasa Port - Nairobi Railway, Cross-border M&A activity remained economic situations, B&R Initiative,
initial segment of East Africa railway active in 2017. Chinese business had regulatory policies and the influence
network, opened to traffic. The first a total of 341 M&A projects overseas, of innovative technologies, Deloitte
tunnel along China – Laos Railway with an actual transaction value of comes up with the following opinions
has been bored through successfully. US$96.2 billion, involving 18 industries on outbound investment trend in
First-stage of China – Thailand over 49 countries and regions. Among 2018:
railway started construction. And them, domestic direct investment
•• One could assume that in 2018 the
the Hungary – Serbia railway project projects and overseas financing
synchronized recovery of OECD
and Karachi expressway project projects totaled at US$21.2 billion
countries will continue and major
are pushing through smoothly. and US$75 billion, taking up 22% and
central banks' tightening of the
Great breakthroughs were made 78%, respectively. Total turnover of
money supply will be gradual (both
as for Free Trade Zone. Free Trade foreign contracted projects reached
assumptions are sensible). It is also
agreements were signed with Georgia US$168.59 billion with a year-on-year
quite probable that the renewed
and Maldives and negotiations have growth of 5.8%. Newly signed foreign
strength of the dollar and event risk
started with Moldova and Mauritius, contracted projects increased, totaling
(e.g. a hard Brexit) could well keep
and RCEP negotiation has made at US$265.28 billion with a year-on-
a lid on any rally of the Euro, thus
positive progress.
allowing the Fed to increase short-
term interest rates in a measured
fashion. The above scenario, which
is entirely plausible, would be
positive for China. However, since
6
2018 Deloitte Outbound Investment Guide for Chinese Businesses
already in 2017 the vastly improved increase its presence along the B&R
fortunes of the developed countries out of concerns of geopolitics and
resulted in a favourable backdrop financial risks.
for China's external sector, can
•• Opportunities and risks coexist
Chinese exporters really repeat their
along the B&R. Investors must
sterling performance in 2018, on a
look at projects from long-term
relatively strong base of 2017? It is
perspective. Risks should not be
challenging. In addition, the Trump
underestimated, or overestimated.
Admiration's pressure on China
B&R Initiative therefore will
in terms of bilateral trade deficit
undoubtedly continue to prevail.
reductions will not go away.
In May 2015, NDRC estimated that
•• B&R Initiative is of increasing Chinese outbound investment
significance. Instead of limiting would reach a total volume of
B&R Initiative to a strategy serving US$600–800 billion in the next five
Chinese companies only, China is years, with many of which flew into
intentionally blurring the concept countries along the B&R. In October
to encourage more involvement 2017, B&R Initiative was included
from related countries and regions into the CPC Constitution, which
around the globe. Reforms are showed B&R Initiative’s deep policy
taking place too in terms of target implications and encouraged more
industries. At the beginning, B&R companies to participate.
Initiative was featured by long-term
•• Capital control will continue. The
infrastructure investment projects,
new Administrative Measures for
profiting mainly SOEs in China.
Enterprise Outbound Investment
Now, investments are expanding st
would come into effect on March 1 ,
into trade, manufacturing, IT and
2018. Under the new regulations,
tourism, enabling companies to
investments in sensitive sectors
benefit from B&R Initiative in the
near future. Besides, China must
Figure 3 China’s non-financial ODI dropped by more than 30%
US$ 100 million Growth rate
2,000 60.0%
1,800 49.3% 50.0%
1,600 40.0%
1,400 30.0%
1,200 15.6% 1812 20.0%
1,000 13.3% 10.0%
800 0.0%
600 1201 -10.0%
1180
400 1028 -20.0%
200 -30.0%
-33.7%
0 -40.0%
2014 2015 2016 2017
Growth rate
Source: MOFCOM, Deloitte Research
7
2018 Deloitte Outbound Investment Guide for Chinese Businesses
must be checked by NRDC and equity investment funds will •• Projects that focus on the future
those in non-sensitive sectors continue to be restricted. and technological innovation are
should file records according to favoured. Chinese investors of the
•• Internet companies like Baidu,
the value (no record-filing required new generation are determined
Alibaba and Tencent (BAT) would
for investment below US$300 to promote social progress and
play significant roles in outbound
million). However, capital control improve living standards through
investment. Emerging Internet
as a whole is still a temporary technological products. Therefore,
companies represented by BAT
measure, as all forms of control they invest heavily in frontier science
is expanding their investment to
are bad for state owned economy and technology fields, such as
Silicon Valley in search of high-
and private economy. China’s artificial intelligence, biotechnology,
quality start-ups. They will initiate
economic transformation should etc. Chinese investors are also
a third wave of investment boom,
focus on further deleveraging and willing to transform traditional
following the ones started by SOEs
encouraging outbound investment industries, such as real estate,
and private enterprises. Internet
rather than addressing GDP growth. energy, and manufacturing which
companies lay great emphasis on
Otherwise, exchange rate of RMB have already faced a capital surplus,
strategic blueprint of investment
need further adjustment. through advanced technologies and
(Baidu’s acquisition of mobile
new ideas. The trend in the next
•• Investments in sensitive sectors will security company TrustGo, Tencent's
five to ten years is to invest in high-
continue to be strictly controlled. investment in Online design
value projects overseas and open
The new list of sensitive sectors retailer Fab, Alibaba's investment in
up global markets through venture
for outbound investment would Mobile App Search Engine Quixey,
investment funds, industrial funds,
come into effect on 1st March, 2018. Messaging App Tango and Smart
and M&A funds.
Irrational investment overseas Remote App Peel etc.), representing
in properties, hotels, cinemas, a change of "Made in China" from
entertainment, sports clubs and cheap commodities to innovative
products.
Figure 4 Greater China Outbound M&A Overview: 2005 – 2017
US$ billion Number of Deals
250 480 500
436
200 375 400
293
150 300
237
100 190 186 200
148
110
92 88
50 64 70 100
0 -
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Q1 Q2 Q3 Q4 Deal Value(LHS) Deal Value(RHS)
Source: Mergermarket
Note: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal volume includes the number of
announced/completed deals with disclosed and undisclosed values during the period stated. 3) Deal value includes the value of
announced/completed deals with disclosed values during the period stated.
82018 Deloitte Outbound Investment Guide for Chinese Businesses
After record-breaking year in terms of
outbound M&A transaction value and deal
volume, China witnessed a relative slowdown
in 2017 with only US$140.7 billion worth
(dropped 32.6% from 2016) of 436 (dropped
9.2% from 2016) announced Chinese
outbound M&A deals. The tightened
regulatory oversight governing capital
outflows has cooled off some Chinese
investors' spending sprees in investing
abroad.
3.Greater China Outbound M&A The announced outbound M&A deal
Review value contracted from US$208.7
The landscape in China, however, billion in 2016 to US$140.7 billion
remains conducive to Chinese in 2017, attributable to the decline
companies in making overseas of mega deals (over US$1 billion)
acquisitions or investments, from 39 in 2016 to 29 in 2017. The
particularly with a range of supportive notable ChemChina-Syngenta deal,
incentives and policies (such as Belt the country's largest outbound deal in
& Road Initiative) rolled out by the history, fueled the overall deal value in
government. 2016 with US$43 billion.
Looking ahead, despite the drop in Overseas targets in Consumer &
2017, we expect the China outbound Industrial Products (C&IP) remained
M&A momentum will rebound and attractive to Chinese investors. In
remain strong and may reach a new 2017, the largest two announced
high in 2018. outbound M&A deals were in
Transportation sector: 1) the US$13.8
billion acquisition of UK-based
LogiCor Europe Limited by China
Investment Corporation (CIC), the
Chinese sovereign wealth fund, from
Blackstone Group; and 2) the US$11.6
billion acquisition of Singapore-listed
Global Logistic Properties (GLP) by a
consortium led by China Vanke.
92018 Deloitte Outbound Investment Guide for Chinese Businesses
Figure 5 Greater China Outbound M&A by Target Region: 2016 vs 2017
Europe
deal value (US$ billion)
North & Central America
100
deal value (US$ billion)
80 80
60
60
40
40
20 80
20
0 60
2016 2017
2016 2017 United Kingdom
40
United States America Germany
Canada France 20
Rest of North Central America Central & East Europe
South America Rest of Europe 0
deal value (US$ billion) 2016 2017
15 Middle East & Africa
deal value (US$ billion) Australia
16
10 South East Asia(SEA)
12 Japan
5
8
0 4
2016 2017
Brazil 0
Rest of South America 2016 2017
Africa
Israel
Rest of Middle East
Source: Mergermarket
Notes: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal value includes the value of announced/
completed deals with disclosed values during the period stated.
102018 Deloitte Outbound Investment Guide for Chinese Businesses
Boosted by the largest Chinese Aggregated Chinese outbound deal
outbound deal in 2017 (China Vanke- value in United States of America
GLP deal), Southeast Asia was the dropped significantly from US$59.5
most favorite destination region billion in 2016 to US$11.8 billion in
in terms of deal value with over 2017, attributable to fewer mega
US$33 billion worth of Chinese deals deals announced in 2017. In 2016,
announced. two notable deals included Avolon
Holdings' US$10 billion takeover of
Australia, with aggregated US$18.8 CIT Commercial Air Unit and HNA's
billion of Chinese outbound deals US$6.5 billion acquisition of 25% stake
announced, ranked as the second in Hilton Worldwide.
most active destination in terms of
deal value in 2017, partly attributable Brazil has been one of the
to the US$5.6 billion takeover of destinations for Chinese acquirers
power provider Duet Group by seeking for Energy & Resources
Hong Kong-based Cheung Kong targets. State Grid acquired CPFL
Infrastructure (CKI) as well as the Energia S.A. in 2 phases: 54.64%
US$3.1 billion acquisition of Alinta stake in 2016 for US$9 billion and the
Energy by Hong Kong conglomerate remaining 45.36% in 2017 for US$4
Chow Tai Fook (CTF). billion.
In 2017, United Kingdom attracted Chinese investors have their eyes
a total of US$18.3 billion worth of in Israel for companies mainly in
Chinese M&A investments, largely innovative technology and consumer
attributable to the sale of UK-based products sectors. While a number
LogiCor Europe Limited to CIC for over of small deals were announced in
US$13 billion. 2017, two notable deals aggregated
to over US$8 billion were announced
in 2016: 1) US$4.5 billion acquisition
of Israeli social game developer
Playtika by a Chinese consortium
led by Giant Network Group; and
2) the US$3.9 billion acquisition of
ADAM Agricultural Solutions by Hubei
Sanoda.
112018 Deloitte Outbound Investment Guide for Chinese Businesses
Figure 6 Greater China Outbound M&A by Target Industry: 2015 – 2017
US$ million
$85,272
$17,814
21
53
375 deals $32,645
6
$208,659
2015 $18,425
64 206
$28,675 29
$20,299 49
25
480 deals
12
$3,816
$430 $10,268
$7,022 2016 $104,346
260
98
32
$44,737
$140,674
$6,740
$5,454
26
$36,715
47
436 deals
7
$67,035
2017
75 231
$2,079
50
$19,036
$9,069
Consumer & Industrial Products Life Sciences & Health Care Technology, Media & Telecommunications
Real Estate Energy & Resources Financial Services
Source: Mergermarket
Notes: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal volume includes the number of
announced/completed deals with disclosed and undisclosed values during the period stated. 3) Deal value includes the value of
announced/completed deals with disclosed values during the period stated.
122018 Deloitte Outbound Investment Guide for Chinese Businesses
Volumes of Chinese outbound particularly in developed countries, 51% stake in UK-based Global Switch
Consumer & Industrial Products as evidenced by the increased deal Holdings for US$4 billion. Two mega
(C&IP) announced deals remained volume in 2017. Representative deals in 2017 were the 3.1 billion
strong and consistently accounted announced deal in 2017 included acquisition of Sharp Corporation by
for over 50% of respective year's total the acquisition of 93.37% stake in Taiwan-based ES Platform and the
outbound deal volume during 2015 Singapore-based medical device US$2.5 billion investment Singapore's
– 2017. Significant total announced maker Biosensors International by ride-hailing company Grab by Didi
outbound C&IP value of US$104.3 Shenzhen-listed Blue Sail Medical for Chuxing-led consortium.
billion in 2016 was primarily due to the US$1.2 billion.
striking of US$43 billion ChemChina- Despite volume declined, the value
Syngenta deal in 2016. After Only US$19.0 billion worth of outbound Energy & Resources
normalizing the impact of such mega of Technology, Media & (E&R) deals increased from US$28.7
deal, the total outbound C&IP value Telecommunications (TMT) deals billion in 2016 to US$36.7 billion in
in 2017 would have increased by 0.9% announced in 2017, a sharp decline 2017. Key deals announced in 2017
from 2016. of 57% from 2016 (US$44.7 billion). included: US$9.1 billion acquisition of
In 2016, Chinese TMT players made 14.16% stake in Russia-based Rosneft
With keen intention to uplift bold moves: Tencent acquired 84.3% Oil by CEFC China Energy and the
technological knowhow at home, stake in Supercell Oy in Finland for acquisition of 70% stake in Myanmar's
Chinese acquirers exhibited growing US$8.6 billion, Giant Networks agreed Kyauk Pyu Port by a consortium led by
interests in overseas Life Sciences to acquire Israeli Playtika US$4.5 CITIC for US$7.3 billion.
& Health Care (LSHC) targets, billion, and Elegant Jubilee acquired
Figure 7 Greater China Outbound M&A by Target Sector: 2016 vs. 2017
No. of Deals C&IP LSHC TMT RE E&R FSI
90
81
80 75
67 69
70
60 58
48 46 49 47
50 44
40
27 29 26
30 23 24 23
21 18
20 16 17 18
11 14 11 8 12
10 8 10 9 7
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s
ns
al
nd
&
s
2016 Deal Volume 2017 Deal Volume
Source: Mergermarket
Notes: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal volume includes the number of
announced/completed deals with disclosed and undisclosed values duringthe period stated.
132018 Deloitte Outbound Investment Guide for Chinese Businesses
Figure 8 Greater China Outbound M&A by Target Region and Target Industry: 2017
C&IP LSHC TMT RE E&R FSI
Southeast Asia 26 3 10 1 8 11 59 13.5%
Asia Australia 23 3 1 - 9 2 38 8.7%
Pacific Japan 8 4 3 2 - - 17 3.9%
Rest of Asia Pacific 19 - 12 - 4 1 36 8.3%
Germany 31 3 - - 1 - 35 8.0%
United Kingdom 15 2 9 - 3 1 30 6.9%
France 9 1 2 1 - - 13 3.0%
Europe
Central & East
9 1 1 - - - 11 2.5%
Europe
Rest of Europe 33 8 6 2 3 8 60 13.8%
Africa 2 - - - 5 - 7 1.6%
Middle
East & Israel 2 2 2 - 1 - 7 1.6%
Africa
Rest of Middle East 3 - 1 - 3 - 7 1.6%
United States of
37 22 22 - 3 2 86 19.7%
America
North &
Central Canada 4 1 5 1 1 - 12 2.8%
America
Rest of North &
2 - 1 - - 1 4 0.9%
Central America
Brazil 4 - - - 3 - 7 1.6%
South
America Rest of South
4 - - - 3 - 7 1.6%
America
Total 231 50 75 7 47 26 436 100.0%
% 52.9% 11.5% 17.2% 1.6% 10.8% 6.0% 100.0%
Source: Mergermarket
Notes: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal volume includes the number of
announced/completed deals with disclosed and undisclosed values during the period stated.
142018 Deloitte Outbound Investment Guide for Chinese Businesses
Despite measures imposed in the Looking ahead, we expect Chinese "bringing in" and "going global," follow
second half of 2017 which pulled acquirers continue to seek for overseas the principle of achieving shared
a brake on the heated outbound targets in developed countries in the growth through discussion and
activities, the Chinese government following sectors: collaboration, and increase openness
is still very supportive for Chinese and cooperation in building innovation
•• Consumer products
acquirers in carrying out overseas capacity. "It is indicated that under the
investments actively but prudently. The •• Life sciences guidance of the Initiative, China does
overarching theme of the guidelines •• Health care not only focus on the exploration
promotes Chinese companies to of overseas markets and the idea
expand abroad, transform through •• Technology of "going global" is proposed for
collaboration, and uplift capabilities •• Automotive attracting more foreign investments
and quality by bringing the advanced and for more efficient allocation
•• Energy
technologies and knowhow back home: of global resources. Besides, the
Nevertheless, outbound investments
Initiative serves as a new platform
•• Extend economic influence through in "unrelated" sectors and "prohibited"
of cooperation for win-win results
infrastructure investments and sectors (such as casino, entertainment,
through discussion and collaboration,
projects along the One Belt One real estate, etc.) are not encouraged.
rather than a program/mechanism
Road regions and countries
imposed on other countries. The
•• Expand and export China's 4.The Belt and Road Initiative
initiative should be an effective
production capacity, equipment and to Drive a New Chapter of
approach to building a community of
technical standards Globalization
shared future.
2018 marks five years since Chinese
•• Transform and uplift capabilities
President Xi Jinping put forward
through collaboration with overseas Deloitte observed that B&R Initiative
the Belt and Road Initiative (B&R
companies with advanced and welcomes the participation of all
Initiative). During the past years, the
innovative technologies countries but it attaches more
Initiative has been put into practice,
importance to the construction
•• Explore natural resources abroad to making an increasing impact in the
of key areas and major projects.
help boosting economic growth in world. Now China has entered a new
Taking capacity cooperation projects
domestic market era where it looks to move from
for example, key construction areas
high-speed to high-quality growth.
•• Expand foreign cooperation in covers 46 countries. Among them
Chinese outbound investment also
agriculture and food chain sector for the 15 countries nearby China,
drives a new chapter of globalization
enhancing the safety and quality of including Kazakhstan, serve as the
along with the expansion and further
food and ensuring sufficient supply Main Axis, with 24 African, Middle
development of the Initiative.
domestically East and Central European countries,
At the 19 th CPC National Congress
including Ethiopia, Zimbabwe, Iran
convened in October last year,
and Romania, as the West Wing, and
President Xi stressed that "We should
6 Latin American countries, including
pursue the Belt and Road Initiative
Brazil and Chile, as the East Wing.
as a priority, give equal emphasis to
152018 Deloitte Outbound Investment Guide for Chinese Businesses
The B&R Initiative looks beyond throughout the industry chain and market, making it become the
infrastructure projects and will bring concrete economic benefits most-favored market entry mode
expand its development to other and job opportunities to local for multinationals and investors.
industries and sectors. In the past few communities. The goal of "the new M&A also enable investors to
years when the Initiative was at the chapter of globalization" powered acquire the core competencies and
early stage, most B&R countries had by the Initiative is to seek mutual other intangible assets of the target
an urgent demand for infrastructure benefits and common development companies, including research
construction and thus achieved the rather the establishment of an and development capabilities,
most outstanding performance in exclusive trade-protected zone. trademark, reputation, technologies,
the infrastructure industry. Deloitte management and distribution
•• Bring on board diversified
noticed that, however, the growth in channels, as well as to improve their
shareholders and partners
other industries and sectors, such business portfolios through cross-
While Chinese state-owned
as trade, finance, Internet, culture, industrial cooperation.
Enterprises took the lead in the
education and tourism, increased
development and investment of •• Stricter supervision leading to
gradually. In terms of the international
the B&R Initiative projects at the quality overseas investments
production capacity cooperation
early stage, more and more private with higher returns
projects, both traditional and new
and foreign-funded enterprises are The supervision department have
emerging industries will see new
now engaged in the Initiative. Plus, taken measures to curb ''irrational''
opportunities in the foreseeable
for risk mitigation and sustainable overseas investment and improve
future. It can be predicted that as
development in the destination the alignment of investments with
the priorities of China's and other
countries, enterprises are likely to the overall B&R strategy. Most
countries' development may vary from
form joint ventures or other kinds of Chinese companies, in response,
year to year, both sides will strengthen
cooperative relationship with local have improved their awareness of
their cooperation in more and more
partners. risk management and capabilities of
diversified industries and sectors.
transnational operations. From long-
•• Cross-border M&A to replace the
term perspective, China will continue
In the course of in-depth development green field investment as the
to expand its global investment
of the B&R Initiative, four key trends in major market entry mode
scope and upgrade its investment
globalization and China outbound Compared with other investment
structure, leading to higher quality
investment are summarized as modes, cross-border M&A can
and returns of Chinese outbound
follows: offer most investors, who want to
investments and improved strategy
accelerate their global journeys,
•• Improvement of bilateral of resource allocation.
a quick access to the destination
and multilateral cooperation
mechanisms to drive "a new
chapter of globalization"
Under the cooperation model
proposed by the B&R Initiative,
globalization is no longer only
about the relocation of production
bases from high-cost to low-cost
areas, which gives rise to the job
opportunities transfer. Enterprises
should align themselves with the
development strategy of the region
they invest in and create synergies
between upstream and downstream
enterprises by transferring a major
portion of their procurement,
production, and sales to the
region, so as to build an ecosystem
162018 Deloitte Outbound Investment Guide for Chinese Businesses
5.Considerations and Preparations 3). Overseas engineering
before Chinese Outbound contracting is an integrated
Investment international economic cooperation
Chinese companies may face various method, which refers to
risks in every phase of an overseas engineering projects delegated
investment, including challenges in by foreign government, company
project research, bidding, negotiation, or project owner to a project
signing, closing and operation, as contractor and the contractor shall
well as obstacles due to the foreign conduct the engineering according
culture, legal system and political to the rules applicable.
risks. In light of the above, it is
necessary for Chinese companies to Process for Chinese outbound
conduct risk evaluation based on their investment - approval and
individual situation before conducting recordation
overseas investment. 1). National Development and
Reform Commission (NRDC)
Before conducting overseas Overseas investment projects
investment, every company should subject to approval are sensitive
ask itself three questions, based on its projects carried out by investors
individual situation. either directly or through overseas
enterprises controlled thereby. The
•• What is our development strategy?
approval authority is NDRC. Sensitive
•• What can we get from investing or projects refer to projects involving
acquiring the target company? sensitive countries and regions;
and projects involving sensitive
•• Why is the target company an
industries.
eligible investing/acquiring target for
us?
Projects subject to filing are non-
sensitive projects directly carried
Major forms of cross-border
out by an investor, namely the
investment for Chinese businesses
non-sensitive projects involving
1). Under Greenfield investment,
the direct investment of assets and
company shall set up new entities,
equities or the provision of financing
including sole proprietorship and
or guarantees. For a project requiring
joint venture, according to local
filing, the authority in charge of
laws. If allowed, investment entity
filing is (i) NDRC, if the investor is a
can be set up by way of contract.
centrally administered enterprise
2). Merges & Acquisitions (M&A)
(a centrally administered financial
is the primary form for Chinese
enterprise or an enterprise directly
outbound investment. The
subordinate to the administration by
prerequisite for M&A is sourcing
the State Council or its subordinate
the eligible overseas target. M&A of
organ, the same below); (ii) NDRC, if
an overseas company is conducted
the investor is a local enterprise and
by acquiring the local enterprise by
the amount of Chinese investment
obtaining the ownership or control
is $0.3 billion or above; and (iii) the
of the target company, mainly in the
provincial development and reform
form of equity M&A or asset M&A.
authority at the place where the
investor is registered, if the investor is
a local enterprise and the amount of
Chinese investment is less than $0.3
billion.
172018 Deloitte Outbound Investment Guide for Chinese Businesses
2). The Ministry of Commerce of 4). State-owned Assets Supervision 6). Other related departments
the People's Republic of China and Administration Commission In addition to procedures mentioned
(MOFCOM) of the State Council (SASAC) above, overseas investment projects
The Ministry of Commerce and the Overseas investment conducted may also need approvals and
provincial commerce authorities by solely state-funded enterprises, supports from Ministry of Land and
shall implement filing or approval solely state-funded companies or Resources, Ministry of Finance, State
respectively based on different state-holding/state-participating Administration of Taxation, General
circumstances of overseas companies (SOEs in general) shall be Administration of Customs and
investments of enterprises. approved, examined and approved Ministry of Foreign Affairs.
or recorded by SASAC as the case
•• Overseas investment involving
may be. Legal risks for Chinese outbound
sensitive country/region or
investment
sensitive industry shall be subject •• Central state-owned enterprises
1). Political risk is a type of risk that is
to approval. should file annual outbound
due to the changes of the political
investment plan to SASAC and get
•• Overseas investment under other circumstances, unstable political
approval.
circumstances shall be subject to status, changes of legislations and
filing. •• Investment projects excluded in policies in the country where the
annual investment plan of the investor locates and where the target
•• Countries where overseas
central state-owned enterprises locates, an investment company may
investment shall be subject to
shall be recorded and approved by suffer economic losses.
approval are countries without
SASAC.
a diplomatic relation with China
and countries sanctioned by the •• Confirmation process of outbound Types of political risks: expropriation,
UN. When necessary, the Ministry investment from local state-owned breach of contract by target country,
of Commerce may announce enterprises shall comply with foreign exchange restrictions, strikes,
separately a list of countries and regulations of local SASACs. wars, political riots, insurance claim
regions where overseas investment 5). Anti-monopoly Bureau of settlement etc.
shall be subject to approval. MOFCOM 2). Business risk is the intrinsic risk
Chinese companies may trigger when conducting business overseas.
•• Industries in which overseas
the concentration of undertakings
investment shall be subject to
declaration obligation, when Types of business risks: ambiguous
approval are industries involving
acquiring all or part of equities or contract arrangements, credit flaw
the export of products and
assets of foreign companies. of the other contracting party,
technologies restricted by the
independence of first demand
China from export and industries
A concentration of undertakings guarantee etc.
which affect the interests of more
means any of the following:
than one country (region).
3). State Administration of Foreign •• Merger of undertakings;
Exchange (SAFE):
•• Obtaining control over other
According to the Circular on Further
undertaking(s) by an undertaking by
Simplifying and Improving Policies for
acquiring equities or assets;
Foreign Exchange Administration for
Direct Investment, a relevant market •• Obtaining control over, or the
entity can choose a bank at the place possibility of exercising decisive
of its incorporation for registration influence on other undertaking(s)
of foreign exchange for direct by virtue of contract or by any other
investment. After the registration, the means.
entity is allowed to open accounts, In practice, however, whether a
and remit funds (including outward M&A constitutes concentration of
or inward remittance of profits or undertakings shall be determined
dividends), which are related to direct based on different circumstances.
investment.
182018 Deloitte Outbound Investment Guide for Chinese Businesses
3). Tax risk/foreign exchange risk Preventive measures:
are the risk that the acquiring
•• Have a comprehensive
company of an overseas target
understanding of local laws and
may have unforeseen adverse tax
regulations in relation to labor
consequences due to the unfulfilled
relations and dispute resolution
tax related obligations by the
procedures.
target company and the risk of an
investment's value changing due to •• Gain deep insights about cultural
the changes of currency exchange background regarding labor
rates and interest rate. relations; conduct comprehensive
assessment and forecast of
Preventive measures: conduct tax related labor risks involved in an
due diligence, consider taxation M&A transaction, based on a full
regulations and depreciation grasp on background and laws
regulations of acquired assets, use mentioned above.
financial tools to prevent losses •• In the post-merger integration
related to fluctuation of exchange stage, Chinese investors shall
rate and interest rate, use RMB as the disentangle original labor relations
currency of settlement during M&A if in accordance with local laws and
possible. culture, and settle labor dispute
4). Labor law risk is the risk that an according to effective laws and
investor shall pay attention to when dispute settlement mechanism
it conducting overseas operation after dispute.
and employ local workforce. 5). Intellectual Property Rights
The main risks include: wages/ (IPR) risk refers to the intellectual
compensations/transfers/discharges, property rights disputes involved in
etc. and different approaches an overseas M&A transaction.
to handle labor relations due to
different employment regulations Preventive measures: conduct IPR
(e.g. minimum wages, collective due diligence, analyze the risk of
agreement etc.). infringing a third party's IPR, IPR
protection provisions in share/assets
purchase agreement, and manage
IPR effectively after closing.
192018 Deloitte Outbound Investment Guide for Chinese Businesses
Part II– Go Global
with Chinese
Companies
1.Challenges and Solutions for companies, it is advised that the
Chinese Outbound Investment enterprises should align their
In pursuit of understanding current restructuring plan with their overall
situation, challenges and prospect of global strategy, and clarify the
Chinese overseas investment, Deloitte rights and responsibilities of the
China surveyed 166 companies (51% units (departments) for higher
SOEs, 26% foreign-funded companies, management efficiency.
21% private sectors and 2% public 2). Overseas investment
institutions) from various industries, destinations: State-owned
and found out challenges faced enterprises (SOEs) take lead in
by Chinese outbound investors as B&R Initiative while the private
follows, and foreign-funded sectors
1). Organization structure: nearly focus more on developed
80% of the Chinese enterprises markets
have set up centralized or Southeast Asian, West Asian and
decentralized organization African, South Asian countries
structures for their are the most-favored investment
international business while destinations of SOEs participating
20% of them still not ready in the survey. The result of the
The statistics shows that 78 survey is consistent with that of
percent of the enterprises 2015, which well suggests that
participating in the survey have SOEs, guided by the national
restructured for global success, initiative, are and will continue to
among which 38 percent have serve as the role of "group head" in
established international business the development of the Initiative.
unit in different functions, 28 Unlike SOEs, however, private and
percent have set up independent foreign-funded enterprises pour
departments for international more investments into developed
business management and the regions such as the US and
other 12 percent have formed European countries owing to the
overseas subsidiaries (branches). relatively low risks, mature market
As there exists no single perfect economies as well as the sound
organizational structure for all legal systems in these countries.
202018 Deloitte Outbound Investment Guide for Chinese Businesses
3). Future overseas investment 4). Top 3 challenges faced by Regulation comes after risk as
scale: over 50% of the Chinese overseas investors are the second largest challenge
enterprises will continue to "risk, regulation and talent" facing outbound investors. Due
expand their global business A large number of cases have to the growing law enforcement
while around 30% remain proved that no preparation for risk efforts and increasingly strict
unclear about their business management, improper measures regulation on the investments at
strategy to future overseas to risk mitigation and no reflection home and abroad, enterprises
investments on risk coping are three major become gradually aware that it is
The statistics indicates that 60 reasons leading to the failure crucial to obtain prior knowledge
percent of the SOEs and 41 percent of overseas investments. In the of regulatory environment and
of private enterprises will continue context of the B&R Initiative, the compliance operations in the target
to expand their global business, overseas investors shall consider destinations.
whereas nearly a half of the private how to manage the risks from an 5). Pre-investment stage is the most
enterprises remain unclear about innovative perspective. It is far from challenging in the full lifecycle of
the business strategy towards its enough for the investors to conduct outbound investment
future overseas investments. When risk analysis on one-by-one basis With Chinese companies' in-depth
going global, without the guidance as the situations of countries along development of global business,
of clear and long-term business the Belt and Road are complicated the information asymmetry
strategy, the companies are and vary from country to country. becomes one of the biggest
prone to carry out impulsive and Thus, following the comprehensive barriers hindering enterprises
short-term investments, ultimately risk assessment, enterprises shall from building a proper outbound
resulting in economic loss.。 build a risk management system investment strategy. When
involving risk identifying, warning conducting due diligence, the
and coping, tailored to their
business plans.
212018 Deloitte Outbound Investment Guide for Chinese Businesses
enterprises can leverage the 6). Business risk allocation and
global network and channels of sharing are key considerations
international professional services in project financing
organizations to collect necessary More enterprises attach
and detailed information on emphasis on the risk sharing and
investment destinations and improving project bankability.
the predicted returns on the When enterprises invest in the
investment targets. infrastructure and energy projects
in particular, they shall build a well-
The challenges occurred in structured business architecture
the "investment" and "post- and more importantly, ensure the
investment" stage also shall not minimum guarantee and limited
be underestimated. During the recourse debt by any means.
investment, although most of the 7). Global talent management: it is
companies have already actively crucial to make best endeavors
carried out the “localization to develop global talent through
operations", the headquarters various approaches and
shall to some extent strengthen programs
their management capabilities for International talent pooling and
specific projects and subsidiaries development requires long-term
(branches). With regard to the efforts. To stand out in the fierce
"post-investment" phase, improving competition for global talent
the abilities of integration, business resources, more endeavors should
continuity management, as well be made to attract and develop
as evaluation and supervision international talent through
serve as the priorities for overseas improved talent incentive and
investors. retention mechanism.
222018 Deloitte Outbound Investment Guide for Chinese Businesses
To help Chinese companies address projects and make adjustments, the infrastructure and energy
the major challenges, Deloitte pro- as well as improve and manage the projects in the countries along
vides the following solutions and
global portfolios based on the post- the Belt and Road. On the basis
advice:
investment summary. of local investment environment
1). Carry out a thorough and
3). Adopt inclusive and diversified and regulations, along with the
comprehensive due diligence
business models for local key characteristics of the projects,
to identify various risks,
management and develop Chinese companies shall propose
understand regulatory
overseas operational planning a plan on investment structure
compliance requirements and
and long-term expansion and operation model, and leverage
set up a coping plan before
strategy simultaneously the overseas financing channel for
kicking off the investment
Chinese enterprises will tax savings and risk transferring.
projects
strengthen their management Plus, establishing a finance center
Enterprises can deal with most
on the subsidiaries (branches) in Hong Kong can greatly facilitate
challenges of "risk management" and
and investment projects across the financing and global portfolio
"domestic and foreign regulatory
the globe, and meanwhile the management.
compliance" if they engage qualified
management model and the role 5). Build new strategies for global
professional organizations to carry
of headquarters will definitely talent pooling and development
out a full and comprehensive due
undergo a period of transformation to map with the development
diligence before investing overseas.
to optimize the companies' the companies' global business
Leveraging the global network
allocation of global resources, With Chinese companies' in-depth
and professional expertise in
through improved management development of international
the investment destinations, the
and mutual promotion between the business, the current number
organizations manage to assist
overseas subsidiaries (branches) quality as well as the structure of
the companies with their pre-
and investment projects. To talent can no longer meet the ends
investment preparation.
secure operational success in the of the companies' requirements.
2). Build an investment
destination markets, enterprises Besides, the recruitment and
optimization model to improve
shall consider their level of management of international
their global business portfolios
international business involvement personnel have become the new
based on analysis of their overall
and then build clear outbound challenges for most Chinese
global business strategies
business strategies, select the companies. More new approaches
During the "pre-investment"
proper investment targets and shall be explored, as it is evidently
phase, enterprises shall evaluate
design overall operation plan from not feasible to copy the talent
whether the investment projects
product portfolio to value chain, management and distribution
are aligned with their long-term
on the grounds of thorough due model of the investment target
business strategy. Apart from
diligence, complete corporate companies. In consequence, the
before mentioned risk management
strategy and knowledge about update of human resources system
and regulatory, other factors
overseas markets. and setup of new strategies to guide
such as the role of projects in the
4). Enhance cooperation with local international talent pooling and
whole portfolio and the layout
governments and partners for development can make an impact
of international business shall
financing risk sharing and tax on the companies' global journey in
also be taken into consideration.
savings the long run.
Facing a multitude of investment
When investing abroad, enterprises
opportunities, enterprises can take
should innovate new financing
advantage of the new technology—
approaches, instead of relying
big data to build a dynamic
on the corporate guarantees.
investment optimization model,
Enterprises shall attach more
by which enterprises can assess
emphasis on the risk sharing and
and select the proper projects,
improving project bankability,
analyze the returns on investment
especially when carrying out
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