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Regulatory intelligence

China’s Belt & Road: A new lane for outbound investments

Thomas Kim  Managing Director, GGO China

Thomas Kim  Managing Director, GGO China

The Belt & Road is a tremendous business opportunity, of course, but also an important example of the responsibility China feels towards the developing world.

After decades of focusing on the quantity of growth, China is advancing to the next stage of its historic economic development and focusing on the quality of its growth. The nation is surely and steadily working toward delivering on its domestic promise of recreating a Great China. One of the first steps in achieving this objective is putting a cap on outbound investments unless they are proven justifiable and integral to the well-being of the Chinese nation.

In addition to justifiable foreign investment, President Xi Jinping is pointing Chinese industries and enterprises to look for opportunities that are linked to the Belt and Road (B&R) initiative. Such investments are expected to benefit China’s reforms and development initiatives, provide a platform for shared lessons and experiences, and, more importantly, provide an opportunity to collaborate with other countries of the world and promote development of the global economy.

Since China launched the B&R in 2013, the initiative has made great progress. According to Thomson Reuters data, China’s outbound mergers and acquisitions (M&A) slowed in 2017, but acquisitions along B&R regions reached a record high of US$45.39 billion – about 50 percent more than in 2016.  China acquisitions along the B&R regions increased from only 69 deals in 2016 to 174 in 2017.   As President Xi’s signature policy, the B&R will be the main theme of Chinese outbound investments.

The B&R is one of this century’s most impactful macroeconomic undertakings, and will see the coming together of the 21st Century Maritime Silk Road and the Silk Road Economic Belt. It will connect China with Europe via Asia, the Middle East and Africa, through a vast logistics and transport network and will be a lifeline to 65 nations, 65 percent of the world’s population, and 40 percent of the planet’s total gross domestic product (GDP).

Without doubt, the corridor offers significant energy, mining, infrastructure, transport, commodities, technology and employment opportunities. What’s more, it opens a world of investment opportunities for Chinese state-run organizations and private companies.

Government reports indicate that more than 20,000 private-owned enterprises (POE) and 50 Chinese state-owned enterprises (SOE) have invested in nearly 1,700 projects in countries along the B&R region over the past three years.

A man takes a picture beneath trees decorated with red lanterns celebrating Chinese new year at a park in Beijing. REUTERS/Kim Kyung-Hoon
A man takes a picture beneath trees decorated with red lanterns celebrating Chinese new year at a park in Beijing. REUTERS/Kim Kyung-Hoon

Examples of investment along theB&R geographies include activity on the part of COSCO, owner of the world’s fourth-largest container fleet and soon-to-become top terminal operator in the world. COSCO has control of Piraeus port in Greece. Via Piraeus, an important port on the B&R superhighway, China provides companies such as Huawei, ZTE, Samsung, HP, and Sony with a gateway to Europe. China Merchants Ports Holdings, another key player, is entering into joint ventures and investing heavily in the B&R corridor. The company’s controlling stake in Tanzania’s Bagamoyo port, which is slated to become Africa’s largest port, and investments in Colombo and Turkey are just the tip of the iceberg.

Other mega-deals include 111 projects by China Railway Construction Corporation in 37 B&R countries, not including several railway projects in Thailand, Nigeria and India.

China has committed to spending up to US$350 billion by 2022 on the B&R projects and it is not difficult to envision where Chinese investors are putting their money.

Last year, together with Tsinghua University Institute for Data Science and Chinese Academy of Social Science Institute of World Economy and Politics – the top two think tanks in China– Thomson Reuters released the Belt and Road Cross-border M&A Research Report. This report, the first of its kind in the industry, sheds light on development in M&A activity in countries along the B&R from 2000 to 2016, and explored the role played by Chinese enterprises as acquirers in these areas.

I had several conversations with experts and scholars at the report-release conference. All the thought leaders agree that developments in the past three or four years clearly indicate that the B&R  regions have become and will continue to be the most significant destinations for China outbound investments. The B&R is not just a business opportunity, but also an important example of the responsibility that China feels towards the developing world.

Learn more

Read the full Belt and Road Cross-border M&A Research Report and explore the full array of solutions from Thomson Reuters China.

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