Embarking on the journey to a new era of opening-up 2018 Deloitte Outbound Investment Guide ...

64 Pages·2017·5.89 MB·English

Embarking on the journey to a new era
of opening-up
2018 Deloitte Outbound Investment Guide for
Chinese Businesses
Global Chinese Services Group | June 2018
2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses
Foreword 1
Part I – Overview 4
Retrospect and Prospect of Chinese Economy 4
Retrospect and Prospect of Chinese Outbound Investment 5
Greater China Outbound M&A Review 9
The Belt and Road Initiative to Drive a New Chapter of Globalization 15
Considerations and Preparations before Chinese Outbound Investment 17
Part II– Go Global with Chinese Companies 20
Challenges and Solutions for Chinese Outbound Investment 20
Deloitte Provide One-stop Solutions for Chinese Outbound Investment 25
Contact us 34
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2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses
Foreword
Deloitte opened its first China office in Shanghai as early as 1917, becoming one
of the first foreign accounting organizations to establish a presence in China. Last
year, Deloitte China celebrated its 100th anniversary. Over the past 100 years,
Deloitte China is committed to making an impact that matters to clients, people and
society, and has grown into a leading professional services organization with more
than 13,000 people in 22 offices across Chinese Mainland, Hong Kong, Macau and
Mongolia. Deloitte's journey in China is an epitome of China's social and economic
development. Today, China is the world's second largest economy with a net capital
outflow. With Chinese investors' footprints expanding all around the globe, the
number of Chinese companies listed on 2017 Fortune Global 500 surged to 115
from 11 in year 2000.

In addition to providing quality services to high-growth domestic market, Deloitte is
committed to helping Chinese companies penetrate and lead the global markets.
Based on this concept, Deloitte Global Chinese Services Group (GCSG) was
established in 2003 to support Chinese companies to expand globally and move
up the value chain. The guide was jointly compiled by Deloitte China and Deloitte
Global Chinese Services Group professionals with local expertise. We hope that the
guide could help Chinese companies engage in and make a greater impact in the
global market, and become world-class multi-national companies.
Patrick Tsang
Deloitte China CEO
Over the past decade, "Going Global" has been the compelling force for China's
economic transformation and the steering guidance for Chinese enterprises'
expansion overseas. An increasing number of Chinese enterprises investing
heavily overseas, establishing globalized industrial chain and value chain.
Meanwhile diversified challenges set in during the globalization. Now is the
time to not only go global, but to go well enough and steady enough so as to
materialize the verily internationalized operations and become the truly world-
class enterprises with global competencies.
In pursuit of service excellency during the process of Chinese enterprises
going global, Deloitte deploys Chinese-speaking professionals across its global
network to provide professional advisory and assistance anywhere, anytime.
This Guide earmarks our efforts and sincerity to go global with you, and may
you find it helpful for your globalization road map!
Vivian Jiang
Deloitte China Deputy CEO
Deloitte China Markets & Global Network Leader
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2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses
China is making strides in transforming its economy - quality of growth has been
the mantra this year. Meanwhile, synchronized recovery in developed countries
has shown a positive prospect for global growth. In the New Era, China will play
a more active role in updating the international economic and trade order – not
only learning from others' strong points but also embracing open innovation in
the process of going out. The perspectives on Chinese economy and outbound
investment in this guide are based on Deloitte's long-term study on the macro
and industry trends, as well as deep communication with clients from all walks
of life.
Sitao Xu
Chief Economist at Deloitte China
An increasing number of countries and organizations are actively involved in
the Belt and Road (B&R) Initiative to promote its deep development across the
globe. Now, the Initiative looks beyond the infrastructure projects, expanded
to other diverse industries and sectors in destination countries. While Chinese
State-owned Enterprises took lead in the Initiative at the early stage, more
private and foreign-funded enterprises are taking parts. It is suggested that
the B&R Initiative has driven a new chapter of Chinese outbound investments,
during which the overseas investment will witness a continuous growth in value
and, more importantly, quality and structure improvement. To move up the
value chain, Chinese companies shall strengthen their global competitiveness
and resources allocation, and enhance risk management control. This guide
offered investment overviews of countries and regions alongside the B&R, as
well as key concerns of Chinese outbound investments. Hopefully this guide
can be of assistance to companies considering entering or expanding their
businesses in the overseas markets.
Norman Sze
Deloitte Belt and Road Services China Leader
Deloitte Northern Region Managing Partner
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2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses
As a trusted business advisor, Deloitte is fully committed to understanding and
addressing the business needs and concerns of Chinese outbound investors.
Our professionals possess the hands-on outbound experience, in-depth sector
knowledge as well as on-the-ground understanding of local market practice
advising them throughout the process of the transaction or project. Leveraging
the global network of Deloitte, we are devoted to providing one-stop and high-
quality multidisciplinary services in connection with their outbound investments
regardless of their destination countries from sourcing to execution, from
negotiation to integration.
This guide provides advice and solutions for Chinese outbound investors to
address their complex business challenges, shares Deloitte's distinctive Belt
and Road Initiative services and our dedicated outbound investment team. This
guide is hopefully to assist Chinese companies in identifying right strategies to
guide their over-all investment journey.
Derek Lai
Vice Chair of Deloitte China
Deloitte Global FA Belt & Road Leader
Deloitte deployed dedicated teams of professionals possessing Chinese
speaking capabilities and knowledge about China and Chinese companies to
provide professional advice and comprehensive solutions to Chinese companies
globalization. We are committed to expanding our footprints as our clients
expand theirs. To stay ahead of the curve in putting the needs of clients as
our priority, we continue our efforts in evolving and adapting to the changing
dynamics of the marketplaces, and provides advice and solutions to clients to
address their complex business challenges.

2018 Deloitte Outbound Investment Guide for Chinese Businesses, released
in the joint efforts of Deloitte Global Chinese Services Group and Deloitte
professionals across the globe, aims to provide insights on Chinese economy
and outbound investment overview and outlook, solutions to outbound related
business challenges, and highlights of selected countries as hot destinations.
We hope this guide will be of great help to you and please feel free to contact us
if professional advice on Chinese outbound investments are needed.
Rosa Yang
Deloitte Global Chinese Services Group Chairman
Deloitte Global Network Affairs Managing Partner
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Part I – Overview
1.Retrospect and Prospect of a comparable performance in 2018. unsustainable in the medium term.
Chinese Economy Therefore, it makes good sense for China will be tested when the cyclical
Embracing a lower growth target China to embrace a slower GDP momentum starts losing steam.
The closely-watched 19th Party growth target. In short, GDP growth shall slow down
Congress has resulted in some clarity in 2018. Considering the tightening
on economic policy. As expected, Economic growth certainly comes of labour market, China should lower
certain landmark years (e.g. 2020, with costs (e.g. exploding credit its expectation on GDP growth (to
2035, and 2050) were given additional growth). Indeed, the new mantra, 6.0% or even lower). Deleveraging
weight with regard to economic coined by President Xi regarding will become more urgent given the
and social welfare targets. However, the ‘mismatch between uneven Federal Reserve's tightening policies
the GDP growth target has been development and people's desire and the decision made during Trump's
deemphasized. This is a welcome for a better life’, suggests that visit to China, which would limit the
development given that de-leverage policymakers had become to realize domestic credit growth and lead to
and SOE reforms can only proceed that economic development was not further opening of financial industry
against a backdrop of slower growth. panacea for everything. We believe (the foreign investment proportion
Looking at the contributions from that China's economic resilience is in securities companies, fund
the property sector and exports in extremely undervalued; however, the management companies and future
2017, it would be too much to expect current growth rate (around 6.5%) is companies will increase to 51%).
Figure 1 Growth pressure of exports and real estate investment under high base
China's exports: YoY Investment of property development:
cumulative YoY
OECD composite leading indicator (right)
Commercial housing sales area: cumulative
(%) (%) YoY (right) (%)
60.00 100.60 12.00 40.00
100.40
30.00
40.00
100.20 9.00
20.00
100.00
20.00
99.80 6.00 10.00
0.00
99.60
0.00
99.40 3.00
-20.00
-10.00
99.20
-40.00 99.00 0.00 -20.00
1 4 7 0 1 4 7 0 1 4 7 0 1 2 5 8 1 2 5 8 1 2 5 8 1
0 0 0 1 0 0 0 1 0 0 0 1 0 0 0 0 1 0 0 0 1 0 0 0 1
5- 5- 5- 5- 6- 6- 6- 6- 7- 7- 7- 7- 8- 5- 5- 5- 5- 6- 6- 6- 6- 7- 7- 7- 7-
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Source: Wind, Deloitte Research
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2018 Deloitte Outbound Investment Guide for Chinese Businesses 22001188 DDeellooiittttee OOuuttbboouunndd IInnvveessttmmeenntt GGuuiiddee ffoorr CChhiinneessee BBuussiinneesssseess
2.Retrospect and Prospect of Under the guidance of the B&R
Chinese Outbound Investment Initiative, Chinese enterprises are
Despite the global slowdown of capital accelerating their globalization.
flow, China’s overseas investment In 2017, MOFCOM and the major
kept a strong growth momentum provincial commerce administrative
with the boost of B&R Initiative and departments recorded and
International Capacity Cooperation. approved 6,172 overseas investment
According to World Investment Report enterprises, and staffs deployed
2017 published by UNCTAD, in 2016, overseas reached 1 million, indicating
global foreign direct investment flow China’s significantly improved
fell by 8.9% to US$1.45 trillion. In spite internationalization.
of this, China still stood out as the
second largest investing country in The Belt and Road Initiative drives
the world. Total investment outflow a new chapter to deepen all-round
of China increased by 34.7% in 2016 cooperation as well as investment
to US$196.15billion, accounting for and trade development
13.5% of global outbound investment, In 2017, total value of non-financial
exceeding 10% for the first time. direct investment from Chinese
Since ODI outnumbered FDI for the companies to 59 countries along the
first time in 2015, China has become Belt and Road reached US$14.36
a net capital exporter in terms of billion, accounting for 12% of total
two-way direct investment. In 2016, non-financial direct investment of the
the gap between ODI and FDI further period, up by 3.5%. Main investment
widened, with net capital outflow hotspots include Singapore, Malaysia,
achieving US$62.45 billion. Indonesia, Pakistan, Vietnam, Russia,
UAE and Cambodia etc. There were
Figure 2 Proportion of China’s ODI flow to global ODI flow grew rapidly
16.0%
13.5%
14.0%
12.0%
9.9%
10.0% 9.1%
7.6%
8.0%
6.7%
6.0%
4.8%
4.0%
2.0%
0.0%
2011 2012 2013 2014 2015 2016
Source: MOFCOM, "2017 World Investment Report" by UNCTAD, Deloitte Research
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2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses
in total 62 M&A transactions along Outbound investment plummeted year growth of 8.7%, among which the
the B&R totaling at $8.8billion, with due to supervision, no new number of projects with value over
year-on-year growth of 32.5%. Among projects in sensitive industries US$50 million reached 782, adding up
them, the largest deal is China In 2017, irrational outbound to US$197.74 billion, taking up 74.5%
National Petroleum Corporation investment was curbed by the of the total value of the newly signed
(CNPC) and China Energy Company government as non-financial direct contracts. The value of export driven
Limited (CEFC)’s joint acquisition of investment in 174 countries and by foreign contract projects was
a 12% stake in Abu Dhabi National regions, 6,236 overseas companies US$15.39 billion.
Oil Company (ADNOC) for US$2.8 amounted to US$120.08 billion, a year-
billion. The turnover of the overseas on-year decrease of 29.4%. In terms Outlook of China Outbound
contracted projects along the B&R of the composition, investment in Investment
amounted to US$85.53 billion, up equity and debt instruments reached In November 2017, Premier Li Keqiang,
by 12.6% year-on-year, taking up US$102.08 billion, a year-on-year pointed out that “It is estimated that
50.7% of the turnover of all overseas decrease of 32.9%, accounting for 85% in the coming five years, China will
contracted projects during the same of all investment. Reinvested income import US$8 trillion worth of goods,
period. The total value of the newly achieved US$18 billion, equalling receive US$600 billion of foreign
signed contracts along the B&R the investment last year, accounting investment, and make US$750 billion
reached US$144.32 billion, up by for 15% of all investment. Foreign of outbound investment. And there
14.5% year-on-year, occupying 54.4% investment mainly flows into leasing will be 700 million visits by Chinese
of the total value of all newly signed and business services, wholesale and tourists to overseas destinations”
contracts in the same period. retail, manufacturing and information at the 20th ASEAN Plus China, Japan
transmission, and software and IT and ROK Summit. By "Going Global",
Economic and trade cooperation services, accounting for 29.1%, 20.8%, Chinese companies could realize their
along B&R was competitively effective. 15.9%, and 8.6% of all investment shortcomings in local operations,
In 2017, China’s trade with the Belt respectively. There were no new learn from others strengths and close
and Road countries reached up to projects in real estate, sport and the gap in between. Complement
7.4 trillion yuan with year-on-year entertainment due to government resources with capabilities is
growth of 17.8%. Construction of restristion. the top demand for outbound
major projects has also progressed. investment. Considering global
The Mombasa Port - Nairobi Railway, Cross-border M&A activity remained economic situations, B&R Initiative,
initial segment of East Africa railway active in 2017. Chinese business had regulatory policies and the influence
network, opened to traffic. The first a total of 341 M&A projects overseas, of innovative technologies, Deloitte
tunnel along China – Laos Railway with an actual transaction value of comes up with the following opinions
has been bored through successfully. US$96.2 billion, involving 18 industries on outbound investment trend in
First-stage of China – Thailand over 49 countries and regions. Among 2018:
railway started construction. And them, domestic direct investment
• One could assume that in 2018 the
the Hungary – Serbia railway project projects and overseas financing
synchronized recovery of OECD
and Karachi expressway project projects totaled at US$21.2 billion
countries will continue and major
are pushing through smoothly. and US$75 billion, taking up 22% and
central banks' tightening of the
Great breakthroughs were made 78%, respectively. Total turnover of
money supply will be gradual (both
as for Free Trade Zone. Free Trade foreign contracted projects reached
assumptions are sensible). It is also
agreements were signed with Georgia US$168.59 billion with a year-on-year
quite probable that the renewed
and Maldives and negotiations have growth of 5.8%. Newly signed foreign
strength of the dollar and event risk
started with Moldova and Mauritius, contracted projects increased, totaling
(e.g. a hard Brexit) could well keep
and RCEP negotiation has made at US$265.28 billion with a year-on-
a lid on any rally of the Euro, thus
positive progress.
allowing the Fed to increase short-
term interest rates in a measured
fashion. The above scenario, which
is entirely plausible, would be
positive for China. However, since
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2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses
already in 2017 the vastly improved increase its presence along the B&R
fortunes of the developed countries out of concerns of geopolitics and
resulted in a favourable backdrop financial risks.
for China's external sector, can
• Opportunities and risks coexist
Chinese exporters really repeat their
along the B&R. Investors must
sterling performance in 2018, on a
look at projects from long-term
relatively strong base of 2017? It is
perspective. Risks should not be
challenging. In addition, the Trump
underestimated, or overestimated.
Admiration's pressure on China
B&R Initiative therefore will
in terms of bilateral trade deficit
undoubtedly continue to prevail.
reductions will not go away.
In May 2015, NDRC estimated that
• B&R Initiative is of increasing Chinese outbound investment
significance. Instead of limiting would reach a total volume of
B&R Initiative to a strategy serving US$600–800 billion in the next five
Chinese companies only, China is years, with many of which flew into
intentionally blurring the concept countries along the B&R. In October
to encourage more involvement 2017, B&R Initiative was included
from related countries and regions into the CPC Constitution, which
around the globe. Reforms are showed B&R Initiative’s deep policy
taking place too in terms of target implications and encouraged more
industries. At the beginning, B&R companies to participate.
Initiative was featured by long-term
• Capital control will continue. The
infrastructure investment projects,
new Administrative Measures for
profiting mainly SOEs in China.
Enterprise Outbound Investment
Now, investments are expanding
would come into effect on March 1st,
into trade, manufacturing, IT and
2018. Under the new regulations,
tourism, enabling companies to
investments in sensitive sectors
benefit from B&R Initiative in the
near future. Besides, China must
Figure 3 China’s non-financial ODI dropped by more than 30%
US$ 100 million Growth rate
2,000 60.0%
1,800 49.3% 50.0%
1,600 40.0%
1,400 30.0%
1,200 15.6% 20.0%
1812
1,000 13.3% 10.0%
800 0.0%
600 -10.0%
1180 1201
400 1028 -20.0%
200 -30.0%
-33.7%
0 -40.0%
2014 2015 2016 2017
Growth rate
Source: MOFCOM, Deloitte Research
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2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses
must be checked by NRDC and equity investment funds will • Projects that focus on the future
those in non-sensitive sectors continue to be restricted. and technological innovation are
should file records according to favoured. Chinese investors of the
• Internet companies like Baidu,
the value (no record-filing required new generation are determined
Alibaba and Tencent (BAT) would
for investment below US$300 to promote social progress and
play significant roles in outbound
million). However, capital control improve living standards through
investment. Emerging Internet
as a whole is still a temporary technological products. Therefore,
companies represented by BAT
measure, as all forms of control they invest heavily in frontier science
is expanding their investment to
are bad for state owned economy and technology fields, such as
Silicon Valley in search of high-
and private economy. China’s artificial intelligence, biotechnology,
quality start-ups. They will initiate
economic transformation should etc. Chinese investors are also
a third wave of investment boom,
focus on further deleveraging and willing to transform traditional
following the ones started by SOEs
encouraging outbound investment industries, such as real estate,
and private enterprises. Internet
rather than addressing GDP growth. energy, and manufacturing which
companies lay great emphasis on
Otherwise, exchange rate of RMB have already faced a capital surplus,
strategic blueprint of investment
need further adjustment. through advanced technologies and
(Baidu’s acquisition of mobile
new ideas. The trend in the next
• Investments in sensitive sectors will security company TrustGo, Tencent's
five to ten years is to invest in high-
continue to be strictly controlled. investment in Online design
value projects overseas and open
The new list of sensitive sectors retailer Fab, Alibaba's investment in
up global markets through venture
for outbound investment would Mobile App Search Engine Quixey,
investment funds, industrial funds,
come into effect on 1st March, 2018. Messaging App Tango and Smart
and M&A funds.
Irrational investment overseas Remote App Peel etc.), representing
in properties, hotels, cinemas, a change of "Made in China" from
entertainment, sports clubs and cheap commodities to innovative
products.
Figure 4 Greater China Outbound M&A Overview: 2005 – 2017
US$ billion Number of Deals
250 480 500
436
200 375 400
293
150 300
237
190 186
100 200
148
110
92 88
50 64 70 100
0 -
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Q1 Q2 Q3 Q4 Deal Value(LHS) Deal Value(RHS)
Source: Mergermarket
Note: 1) Greater China refers to Mainland China, Hong Kong, Macau and Taiwan. 2) Deal volume includes the number of
announced/completed deals with disclosed and undisclosed values during the period stated. 3) Deal value includes the value of
announced/completed deals with disclosed values during the period stated.
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