ODI Expansion Outpaces GDP Growth by 3 Times

China's outbound investment is expanding almost three times as fast as the nation's GDP, and the emphasis is shifting away from resources and toward the service sector and industry, a private equity firm said in a report on Wednesday.

A Capital, which has offices in Beijing, Brussels and Hong Kong, said that from January to September, China's ODI totaled US$73 billion, up 20 percent year-on-year. The GDP growth rate for the period was 7.7 percent, the report added.

The firm said China's ODI will likely equal inward foreign direct investment in the next three years, with an additional US$500 billion in new outbound investment by 2016.

About 57 percent of Chinese ODI in the first nine months went into mergers and acquisitions, which rose 21 percent to US$41.6 billion.

"It shows that the trend of 'going global' is accelerating as the economic model changes," said Andre Loesekrug-Pietri, chairman of A Capital.

Investment in overseas resources projects and companies totaled US$23.7 billion, up just 7 percent - and that even included the US$15.3 billion takeover of Nexen Inc by CNOOC Ltd. That deal alone accounted for 63 percent of all resources M&A by value.

Investment in industry and the service sector surged 46 percent to US$17.9 billion. The total was boosted by the acquisition of US-based pork producer Smithfield Foods Inc by Shuanghui International Holdings Ltd.

In the industry and services category, ODI in North America took up 40 percent, with 30 percent in Europe.

"Chinese investors are increasingly going for high added-value firms," said Loesekrug-Pietri.

The firm said that US$24.7 billion was invested in M&A deals in North America in the first nine months, producing 60 percent of them.

Only 13.9 percent of all M&A deals went to Europe. And the value in the first three quarters dropped 25 percent to US$5.8 billion. There were only two exceptions: ODI in Germany was up 72 percent, and investment in France was "stable", the report noted.

"North America and Europe will be popular M&A destinations for Chinese investors in the coming years, because their industry and services sectors are very strong and companies in the regions are also open to Chinese investment," said Loesekrug-Pietri.

But he added that as the economies in the US and Europe improve, it's getting more difficult to do takeover deals, and being minority shareholders can be a wise choice for Chinese investors.

State-owned enterprises remained the driving force, accounting for 75 percent of all M&A deals by value in the first nine months.

Private-sector companies' total M&A deal value was up 86 percent at US$10.4 billion.

Alei Duan, managing director of London-based financial advisory firm Abridge Capital International Ltd, said there's a big difference between M&A deals by Chinese SOEs and those by private businesses in Europe.

He said SOEs usually have the money to make big acquisitions, but such deals have slowed in 2013 due to China's leadership change.

"The change meant that SOEs must wait to hear new policies and directions. I think SOEs' acquisitions in Europe will increase next year," said Duan.

Private Chinese companies are becoming more active in making acquisitions in Europe across both the manufacturing and service sectors.

"Many private Chinese companies are looking for good technology and products to take to China's domestic market," Duan said. That's because private companies can't afford large deals, and they want to control risks by keeping transactions small.