TCA Apr 2014

China Capital: Inbound/Outbound FDI & Overseas Resource Investment

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In 2013, China’s total FDI amounted to USD 118 bn, and China’s OFDI reached USD 90.2 bn, representing increases of 5.6% and 16.2% year-on-year, respectively. FDI continued to be largely sourced from Asian nations, while China’s OFDI continued to spread across the globe. MOFCOM data indicates that future levels of China’s OFDI are likely to exceed the current level of FDI. By Beijing Axis Capital.


Foreign Direct Investment into China

➢ In 2013, FDI into China amounted to USD 118 bn, an increase of 5.6% y-o-y. Calculated on a monthly-basis, FDI into China fell sharply in the second half of 2013 but bounced back to 12 bn in December 2013
➢ According to the Ministry of Commerce (MOFCOM), FDI into the services sector reached USD 61 bn in 2013, representing over half of China’s total FDI for the first time
➢ Though eastern China received the majority of FDI with 78%, central and western China received increasingly shares in 2013
➢ In 2013, 86% of FDI into China originated from other parts of Asia. Traditionally the hub for investment into China, Hong Kong is still the largest source of capital for China, contributing USD 78 bn or 67% of total inward FDI, while Japan and Singapore were second and third with USD 7 bn (6%) each. The US, the largest non-Asian source of FDI into China, provided USD 3 bn (3%) in 2013
➢ In 2013, the number of newly-established foreign-invested enterprises reached 22,773



Notable Chinese FDI Deals in Q4 2013 – Q1 2014
➢ In March 2014, SBI Group, a Japanese financial services firm and former department of Softbank, acquired a Shanghai-based online education firm, TutorGroup, who is backed by Alibaba Group
➢ In March 2014, Unilever, an Anglo-Dutch consumer goods firm, acquired a controlling share in Qinyuan, a Chinese water purification company. Without stating the size of the deal, Unilever stated that this is the largest acquisition it has made in recent years
➢ In February 2014, Danone, a French food producer and the world’s largest yoghurt producer, more than doubled its stake in Mengniu, China’s largest dairy producer, from 4% to 9.9% for USD 663 mn. Danone has taken an aggressive approach in China, having acquired a 51% stake in Wahaha, China’s largest beverage producer in 1996
➢ In November 2013, German automotive corporation, Daimler AG, acquired a 12% stake in BAIC Motor, one of the top Chinese automotive manufacturers, for approximately USD 84 mn
➢ In September 2013, Indofood, an Indonesian food processor and subsidiary of Hong Kong-based holding company, First Pacific, acquired a 3.9% stake of China Minzhong Food for approximately USD 23 mn


Chinese Outbound Foreign Direct Investment

Summary of China’s OFDI
➢ In 2013, China’s non-financial OFDI amounted to USD 90 bn, an increase of 17% y-o-y
➢ In 2013, The Beijing Axis tracked 117 overseas investment activities by Chinese companies, including on-going transactions and the conclusion of previously announced deals. Among these transactions, 41 were resource-related investments and 76 were non-resource investments
➢ MOFCOM reported rapidly increasing flows of OFDI from China into the US (USD 4.2 bn), Russia (USD 4.1 bn) and Australia (USD
3.9 bn) in 2013
➢ Private Chinese companies accounted for 37% of the total non-financial OFDI in 2013, while state-owned enterprises accounted for 63%, demonstrating the primary role of state-owned enterprises as Chinese overseas investors
➢ An overwhelming 90% of Chinese OFDI falls into the following sectors: business services, mining, wholesale and retail, manufacturing, construction and transportation. Construction and culture, sports and entertainment present the fastest growth in investment, with increases of 129% and 102%, respectively; mining, wholesale and retail trade, manufacturing, and real estate also achieved rapid growth
➢ Looking forward, Chinese OFDI in natural resources, such as agriculture, will continue to increase due to increasing domestic demand

Notable Chinese OFDI Deals in Q4 2013 and Q1 2014
➢ COFCO, China’s largest food processor and grain trader, announced a joint venture with mainland private equity firm, Hopu Investment Management, in March 2014. The new venture will acquire a 51% ownership of Hong Kong-based agricultural commodities trading operation, Noble Group. This announcement came days after Cofco announced a USD 250 mn acquisition of a 51% stake in Dutch grain trader, Nidera. These deals exemplify China’s rapid overseas expansion in the agricultural sector
➢ In March 2014, Fosun, one of China’s largest privately-owned conglomerates, invested USD 1.26 bn to develop 3.5 sq. km of Greek coastline, which was previously home to Athen’s Hellenikon airport. This deal marks a “buy low” strategy at a time when many investors are avoiding the unsteady Greek economy
➢ In February 2014, Wanxiang, China’s largest automotive group, acquired American electric automobile manufacturer, Fisker Automotive, for USD 149 mn
➢ In January 2014, Lenovo purchased Motorola Mobility, the cell phone division, from Google for USD 2.9 bn. Google had purchased this division of Motorola in 2011 for USD 12.5 bn but has experienced challenges in making the division profitable
➢ In December 2013, Henan Civil Aviation Development & Investment announced plans to buy a 35% share of Cargolux Airlines International for USD 231 mn. This deal will give Henan Civil Aviation Development and Investment veto power on decisions made by the Cargolux executive committee and supervisory board. This deal also established a “dual-hub strategy” comprised of four weekly flights between Zhengzhou and Luxembourg
➢ In December 2013, Belgian KBC Bank agreed to sell its subsidiary, the Antwerp Diamond Bank, to the Chinese Yinren Group for USD 270 mn
➢ In December 2013, Hepalink Pharmaceutical acquired the Scientific Protein Laboratories (SPL) for USD 338 mn. SPL is an leading producer and supplier of active pharmaceutical ingredients, with over 40 years’ experience in drug marketing in Europe and the US
➢ In November 2013, the Sinopec Group purchased a 33% stake in the American Apache Corporation’s Egyptian oil & gas assets for USD 3.1 bn
➢ In October 2013, Beijing-based Sinoma International Engineering purchased a 59% stake in German mining equipment firm, Hazemag & EPR Gmbh, from the Schmidt Kranz Group for USD 140 mn, which will help Sinoma expand its reach in mining equipment
➢ In September 2013, Zhongjin Lingnan (Hong Kong) Mining China’s number three zinc producer, proposed purchasing the remaining 47% of Australia Perilya, which operates metal mines in Australia and the Dominican Republic

Trends in China’s Overseas Resource Investment
➢ During the Third Plenary Session in November 2013, Beijing announced that it will continue to expand the scale of China’s OFDI. Large overseas resource investments will remain concentrated in the oil and gas sector and the mining industry
➢ Reinforcing China’s growing role in Latin America, in November 2013, PetroChina purchased the Peruvian subsidiary of Brazilian Petrobras for USD 2.6 bn. The Peruvian subsidiary will hand over two oil and gas fields, which currently produce 800,000 metric tonnes of oil equivalent a year, and a 46% stake in recently discovered Lot 57, a gas field. This deal comes a month after CNPC and CNOOC each purchased 10% stakes in Brazil’s largest oilfield, Libra, which is estimated to hold between 8-12 bn barrels of recoverable oil for USD 700 mn
➢ Though growth in China’s investment in the African mining sector had stalled over the past two years due to depressed metal prices and tight credit, Chinese representatives attending the Mining Indaba conference in Cape Town indicated that they would be seeking to make investments offering financial returns and raw materials. Recent deals, such as China National Nuclear Corporation’s USD 190 mn purchase of a 25% stake of the Australian-owned Langer Heinrich uranium mine in Namibia demonstrate interest. Further, a recent document from China’s National Development and Reform Commission stressed that China needed more imports of iron ore to balance steel prices
➢ In September 2013, China significantly expanded its involvement with Central Asia and Russia by making large investments in securing energy resources from Russia and Kazakhstan. PetroChina and Russian state-owned oil giant, Gazprom, agreed on the basics for a deal that would send roughly 38 bn cm annually at a price of USD 10-11 at the Chinese border. The deal will require the construction of a pipeline, which is predicted to be finished in 2018, and the gas would benefit Chinese policymakers interested in reducing emissions resulting from coal combustion. China also signed a USD 5 bn deal with Kazakh state-owned KazMunaiGas for an 8% stake in its massive Kashagan oil project in the Caspian Sea




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