'Ice age' looms for China's outbound investment: study

BEIJING (Reuters) - China saw a rapid acceleration of outbound direct investment in services and industrial deals in 2016, a study showed in Thursday, but an investment “ice age” is looming in 2017 as authorities crack down on capital outflows.

FILE PHOTO: Dalian Wanda Group's Wanda Plaza building is pictured in Beijing, China, May 17, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Beijing announced a string of measures late last year to tighten controls on money moving out of the country and rein in risks from “irrational” outbound investment in property, entertainment and sports.

“You can see over the past four months there have been almost no big transactions,” Andre Loesekrug-Pietri, founder and managing partner of A Capital, a private equity fund specializing in Chinese outbound investments, said last month. It also compiles the Dragon Index which tracks Chinese ODI.

Loesekrug-Pietri doubted if 2017 could match the $170 billion worth of Chinese investments made overseas last year.

“I feel we are entering an ice age with difficult years ahead.”

For the first three months of this year, China’s non-financial outbound direct investment (ODI) tumbled 48.8 percent to $20.52 billion from the same period the previous year.

China’s Dalian Wanda Group’s offer to buy Dick Clark Productions Inc for $1 billion collapsed in March over problems getting currency out of China.

Last year Chinese internet and gaming giant Tencent acquired a majority stake in Supercell, a Finnish mobile game maker for $8.6 billion.

“The importance of this transaction cannot be underestimated,” a statement from A Capital said.

This is the largest deal ever by a private Chinese company in the services industry, an indicator of China’s transition away from heavy industry toward services, the statement said.

Larger deals have been completed by state-owned enterprises in recent years including ChemChina’s $43 billion takeover of Syngenta and China’s CNOOC purchase of Canada’s Nexen Energy for $15 billion.

The data shows private companies are gaining ground on state-owned enterprises, and represented 43 percent of outbound deals in 2016, up from 36 percent the previous year.

Investments by private firms tripled to $61.3 billion in 2016 from $21 billion in 2015.

China’s surging ODI primarily went to developed countries, with $50.4 billion going to the United States and $51.7 billion to Europe in 2016, according to the Dragon Index.

China’s outbound investment hit $170.1 billion in 2016, up 44.1 percent from 2015.

Data from China’s commerce ministry showed the country’s non-financial ODI in countries involved in China’s Belt and Road Initiative - announced by China’s President Xi Jinping in September 2013 - totaled $45.95 billion between 2014 and the first quarter of 2017.

The A Capital Dragon Index measures the growth rate of outbound investment stock relative to GDP. The index, started in 2010, collects information on confirmed deals exceeding $5 million which yield a stake of more than 10 percent in an asset.

Reporting by Sue-Lin Wong and Kevin Yao; Editing by Shri Navaratnam