According to the latest data from the Ministry of Commerce, China's outbound investment in manufacturing industry will continue to show a growth trend in 2024. Specifically, from January to October 2024, China's foreign non-financial direct investment was US$115.83 billion, an increase of 10.6% over the same period last year. KPMG's analysis points out that Asia, especially the ASEAN region, plays an important role in China's outbound manufacturing investment. By the end of 2022, the total direct investment of China's manufacturing industry in Asia reached US$136.13 billion, of which investment in the 10 ASEAN countries accounted for 30.4% of the total investment in Asia, highlighting the central role of ASEAN in the overseas layout of China's manufacturing industry. At the same time, Chinese investment in the European manufacturing sector also showed strong growth, with the amount of investment at the end of 2022 increasing by 16.7% compared to the previous year. Latin America and North America are also important destinations for China's outbound manufacturing investment, ranking third and fourth with US$47.74 billion and US$28.66 billion respectively.
Figure: China's manufacturing FDI stock in states at the end of 2021 and 2022, US$100 million
Deeply affected by the international situation and geopolitical factors, the activities of Chinese manufacturing enterprises in the field of overseas M&A have shown a downward trend year by year since hitting a high of US$27.5 billion in 2018. According to relevant data, from 2021 to 2023, Europe and North America have become the first choice for Chinese manufacturing companies to implement overseas mergers and acquisitions. Among the various sub-sectors of the manufacturing industry, Chinese companies are particularly interested in pharmaceutical and medical device manufacturing, computer/communication and other electronic equipment manufacturing, machinery and equipment manufacturing, and automobile manufacturing, which have become the focus of China's overseas investment.
KPMG's analysis report points out that compared with the slowdown in cross-border M&A in China's manufacturing industry, greenfield investment has shown strong growth in recent years, which not only helps enterprises expand overseas markets, but also promotes the integration and upgrading of the global industrial chain. Greenfield investment, also known as creation investment or new investment, refers to an enterprise in which part or all of the assets of multinational corporations and other investment entities are set up in the host country in accordance with the laws of the host country and the ownership of part or all of the assets is owned by foreign investors. This type of investment is characterized by the establishment of new enterprises, starting from scratch, from small to large, gradually forming a scale, and establishing its own business system.
Figure: Cross-border M&A and greenfield investment in China's manufacturing industry from 2018 to 2023, US$100 million
It is understood that the greenfield investment of Chinese manufacturing enterprises involves a variety of fields, including automobiles, electronics, chemicals, machinery, etc. These industries are the dominant industries of China's manufacturing industry and are also important links in the global industrial chain. In addition, China's manufacturing enterprises are increasingly diversifying their greenfield investments, covering not only traditional markets such as Southeast Asia and Africa, but also gradually expanding to developed markets such as Europe and North America. KPMG pointed out that the automotive manufacturing industry has driven China's greenfield investment in Europe, and as China's electric vehicles continue to expand into the European market, electric vehicles, batteries and related supply chain companies have set up factories in Hungary, Germany and other countries to meet the needs of local consumer markets. For example, BYD invested in the construction of an electric vehicle factory in Hungary; CATL is cooperating with Indonesia to build a battery plant, etc. This is one of the important strategic layouts of enterprises in the world.
Figure: Proportion of China's manufacturing overseas greenfield investment industry in the past three years, %
From the perspective of the composition of the greenfield investment industry, the automobile manufacturing industry topped the list with an investment scale of US$27.94 billion, accounting for 63.8%, becoming the primary target industry for greenfield investment. Metal products followed in second place. The railway/ship and other transport equipment manufacturing industry ranked third with an investment of US$4.54 billion.
However, Chinese manufacturing enterprises face many challenges when investing in greenfield overseas, such as political risks, legal risks, market risks, etc. These risks can have a negative impact on a business's return on investment. Despite the challenges, there are huge opportunities for greenfield investment for Chinese manufacturing companies. For example, through greenfield investment, enterprises can expand overseas markets and improve their international competitiveness; It can obtain the resources and technology of overseas markets and improve its own technical level and management capabilities; It can also promote the transformation and upgrading of domestic industries and promote high-quality economic development.
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