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Chinese companies are setting up everywhere except China – and the United States

As China’s economy struggles to recover from the pandemic, Chinese companies are looking for new growth opportunities – and many are finding them overseas.

Chinese companies like social media giant TikTok and IT giant Lenovo are already globally competitive giants with compelling products.

Others are now following in their footsteps. These include electric vehicle makers BYD and Chery, as well as consumer brands like Luckin Coffee. Even giants like Alibaba are looking for opportunities outside China as growth slows in the country.

“The current economic climate, characterized by increasing competition and market saturation in China, is prompting companies to explore and establish a presence in international markets,” Chris Pereira, founder and CEO of New York-based business advisory group York iMpact, which helps Chinese companies. go international – told Business Insider.

Chinese overseas investment surged in Belt and Road partner countries

Chinese overseas investment increased by almost 1% between 2022 and 2023, reaching almost $150 billion in 2023, according to a report from professional services giant EY published in February.

Although the total increase of 1% is not a huge jump, the increase in investment has been pronounced in Belt and Road partner countries, where China’s non-financial overseas direct investment has increased. increased by 22.6%. Asia remained the top destination for mergers and acquisitions by Chinese companies for the fifth consecutive year, according to EY.

The top three sectors that Chinese companies invested in were technology, media and telecommunications; advanced manufacturing and mobility, which includes electric vehicles; and healthcare and life sciences. These three sectors represent 53% of total investment by Chinese companies, according to EY.

Certainly, it is not new for Chinese companies to invest outside China. But what is new is their strategy. In the 2010s, Chinese companies were known for buying up high-profile assets. This includes the famous Waldorf Astoria hotel in New York, which was sold to a Chinese insurer in 2014, and ChemChina’s takeover of Swiss agrochemical giant Syngenta in 2016.

This is no longer the case.

Splurge on entirely new deals

Instead of M&A deals, Chinese companies now prefer to enter into greenfield deals, in which they set up subsidiaries in overseas markets and run the business from scratch, according to fDi Intelligence, an investment publication.

This means that Chinese companies will establish overseas facilities under their own brand or their own subsidiaries. This strategy works particularly well in Chinese sectors that already have an advantage, such as electric vehicles and electric vehicle batteries, according to fDi Intelligence.

It is also in line with Beijing’s “Made in China 2025” industrial policy, which aims to make Chinese manufacturing capabilities internationally competitive.

This change in strategy is partly due to increased geopolitical tensions following the tightening of foreign direct investment selection criteria by the US, UK and EU governments to protect critical and strategic industries.

In 2022, the German government blocked Chinese companies from taking stakes in two German microchip companies, citing national security and technology transfer concerns.

So even as outbound investment increases, Chinese cross-border M&A deals fell to $17.3 billion in 2022. This was after years of expansion, which saw investment more than triple , growing from $54.4 billion in 2010 to nearly $201 billion in 2016, according to fDi Intelligence analysis. .

The United States doesn’t get a lot of love

Another difference in China’s overseas investment strategy lies in geography.

Less than a decade ago, China was among the top five investors in the United States.

Today, Chinese companies are abandoning the United States in favor of markets in Southeast Asia, Europe and Africa, Pereira said.

“These regions offer high growth potential, favorable trade agreements and, often, a more welcoming regulatory environment,” he said.

China’s annual investment in America has fallen from $46 billion in 2016 to less than $5 billion in 2022, the Rhodium Group wrote. in a report in September.

China has become a “second-tier player” in the US investment landscape, having been overtaken by countries like Qatar, Spain and Norway, the research firm added.

Pereira said interest had waned due to increased trade tensions, tighter regulatory scrutiny and geopolitical factors.

But even in today’s complex geopolitical environment, Chinese companies are expected to continue venturing outside their homes, according to EY.

“Fueled by companies’ strong desire for development, ‘globalization’ is expected to continue to be a key growth strategy for many Chinese companies,” said Loletta Chow, global leader of EY China Overseas. Investment Network, in the February press release. report.

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