Chinese outbound investment declines

Chinese outbound investment declines

Baker McKenzie analysis reports that FDI all-inclusive outbound remain steady, but M&A declines

According to a recent study from Baker McKenzie and the Rhodium Group, China cut its outbound investment into North America in 2021 by more than a third amid higher hurdles domestically on outbound capital flows and increased scrutiny on foreign investment in the US.

The amount of Chinese foreign direct investment (FDI) flowing into North America fell 34percent to $5.8bn in 2021, despite a $4bn increase in China's overall outbound investment to $138bn, the study found. On the other hand, Chinese FDI into Europe increased by 25percent to $12.8 billion.

In the meantime, Chinese outbound acquisitions declined slightly to $23.7bn, as less politically sensitive industries like consumer goods, entertainment and online gaming attracted the most attention. Around 41percent of the value of Chinese outbound acquisitions went to consumer products and services.

FenXun, Baker McKenzie's partner firm in China's head of private equity, Hong Zhang, said that Chinese investors remain eager for overseas expansion. The growth of China's outbound investments would be even greater if not for the continued disturbance of the global pandemic in 2021.

"Chinese investors interest for abroad are highly motivational for many reasons. It includes desire to enter a broader market, to leverage strategic synergies, to access resources and new energy and to expand their product portfolios."

In light of greater scrutiny of foreign investment by overseas regulators, many Chinese companies are also exploring domestic opportunities, according to Bakers global Chair of the global M&A practice Jannan Crozier. China's tougher regulatory environment has encouraged Chinese companies to ramp up their investments in countries where regulations are more flexible towards Chinese cash, like Latin America. Over the past year, Chinese companies have invested $3 billion in Latin America through outbound M&A, with a focus on mining assets and energy utilities.

According to Alejandro Mesa, head of Bakers' energy law practice in Bogota, "China has been active in M&A in Latin America for various reasons." Initially, devaluations in Latin American countries have contributed to the drop in USD values of assets. In addition, the number of governments that have indicated an interest in working with China is higher than the number of governments that are looking for traditional partnerships with the United States. Third, China shows a greater willingness to invest in the region in the long run.