Appleby Report Details China’s FDI & M&A

Law firm Appleby released the second edition of its annual China Offshore report, which examines China’s foreign direct investment [FDI] and mergers and acquisition activity outside its own borders.

Using the most current available data on investment and deal flow in China and Hong Kong, the report provides an overview of the movement of FDI and how this translates from an offshore perspective.

While China’s future is not without challenges, it continues to propel itself forward as its business and regulatory environment evolves, the report states.

Among the key themes and findings identified in the report are:

• This year looks to continue a trend from 2014 in which there was rapid expansion in overseas Chinese M&A. There have been 281 deals publicly recorded in the first half of this year, almost as many as there were across all of 2013.

• China’s outbound investment is likely to continue to rise as a result of the Chinese government’s relaxing of regulations for the management of outbound investment last year. The changes streamline procedures and allow domestic enterprises to invest in more sectors abroad.

• Overseas investment from China has historically been dominated by state-owned enterprises [SOEs], but the role of private firms surpassed centrally-administered SOEs for the first time in non-financial outbound direct investments [ODI] in 2014.

• China’s slowing economy and market volatility is driving domestic firms to diversify and acquire foreign brands and technology. Additionally, the government’s “going out” policy to encourage Chinese enterprises to expand internationally continues to gain momentum.

• China’s future M&A is likely to extend to U.S. and European marquee brands and technology firms. These provide Chinese firms with established overseas brands to quickly build market share and advanced technology to bring back improved products home for its 1.3 billion customers.

• Offshore locations of Cayman, Bermuda and the British Virgin Islands continue to provide an important service to Chinese outward investment by providing legal stability, access to international capital, financial security and a neutral venue, all of which cannot be guaranteed on the Chinese mainland.

• Hong Kong remains the largest single recipient of Chinese FDI flow, providing a well-recognised launch-pad for further international investment. It accounted for USD71bn [54%] of the 2014 total.

• The latest available figures for Hong Kongshow that FDI inflow into Hong Kong resumed growth, reflecting the relative improvement in the global investment climate after the European debt crisis and US fiscal cliff subsided.

• The BVI was the main source of FDI inflow into Hong Kong, followed by the PRC. After the BVI and China, Bermuda and Cayman were the next most active countries, both for flow into and out of Hong Kong.

• Looking at the immediate destination of investment, China was the top destination for Hong Kong’s outward direct investment stock, with a share of 41% of the total. The BVI was the second largest destination for investment, accounting for 39% of the total position of Hong Kong’s outward FDI stock at end 2013.

• Bermuda and Cayman incorporated companies who make up three quarters of listings on the Hong Kong Stock Exchange.

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Category: All, Business