Through Outward Direct Investment (ODI), China has set itself on a determined course to greatly increase its international investments, a target befitting one of the world’s economic super powers. In this interview, we speak to Beijing-based Apricum Senior Advisor Dr. Christoph Flink, to find out more about China’s investment strategy and how renewable energy technology companies in Europe and North America can benefit.
Dr. Flink, where do you see China going as a global investor?
In 2016, China’s outward direct investment in greenfield projects as well as in mergers and acquisitions reached almost USD 190B (as illustrated below in Figure 1), demonstrating an impressive increase in its share of the total global ODI flow from 1% to more than 10% during the past decade. Compared to China’s contribution of 15% to the global GDP, its participation in global investments is still relatively demure.
While China today has accumulated a sizable ODI stock of USD 1.3T, this represents just 2.4% of the world’s total ODI stock, ranking it 10th on the global ODI ladder. In comparison, the USA holds foreign stocks of USD 5.6T and the EU around USD 9.1T; Germany and the UK, being much smaller in size and GDP, each hold about USD 2.0T in ODI stocks.
So, China still has some catching up to do in order to become a global player on the world’s overseas investment stage. And it is well on its way, with some reports suggesting that China could become the world’s biggest investor by 2020. Moreover, the Chinese government has reiterated its intention to follow its go-global strategy with further ODI growth on many occasions over the past few years, for example, at recent sessions of the Central Party Committee (CPC) and the National People’s Congress (NPC). These strong messages regarding the central government’s priorities, give state-owned enterprises, as well as private companies and investors, a clear direction of where short-term opportunities for profits can be expected.
Where does China invest overseas and why?
The emergence of China as a global creditor, i.e. with a positive net capital flow, is one of the most important developments in the world’s economy today. The establishment of the Asia Infrastructure Investment Bank (AIIB), China’s “One-Belt-One-Road” (OBOR) development strategy, its ”16+1” diplomatic framework with the Central and European Eastern Countries (CEEC), as well as the “China Manufacturing 2025” (CM20125) initiative are all powerful tools, with which the Chinese government intends to channel its efforts to cement its position as an economic power.
On the one hand, China wants to gain soft-power internationally through global capital investments in infrastructure and energy projects and services. On the other hand, China seeks access to innovation and technology abroad to overcome the middle-income gap back home and to support the transition of its economy towards higher-value manufacturing. As a consequence, transportation and energy infrastructure projects dominate China’s equity investment and debt capital targets in developing countries, and China’s M&A activities are primarily focused in the USA and Europe to access new technologies produced by the many innovative companies based there.
Looking at the cleantech industry, China has invested abroad more than USD 25B in alternative energy companies during the past 10 years. Much of it was related to project financing, like the very recent purchase of 100% of EEW by Beijing Enterprises and 80% of WindMW by China Three Georges Capital for more than USD 1.5B each, or the acquisition of Recurrent by Canadian Solar for USD 265M. Other investments targeted the renewable energy supply chain, like the acquisition of REC Solar and Elkem by ChemSolar for USD 640M and USD 2B respectively, as well as the takeover of Solibro from Q-Cells by Hanergy for USD 500M, just to mention a few large deals.
Another trend we observe at Apricum, is the increasing interest of Chinese companies to invest in foreign energy storage technology companies, for example, the stock investment from the German equipment manufacturer Manz by Shanghai Electric, the participation of a major investment into sonnen by Envision Energy, the Series-E funding of Primus by Success Dragon and the securities purchase of ZBB stocks, today known as EnSync, by SPI. In general, we see very good opportunities for western cleantech companies to find additional funding through Chinese companies if they offer a solution for today’s challenges for the growing renewable energy markets in China.
Is there a typical investor profile driving China’s ODI and how can cleantech companies attract the interest of China’s investors?
Initially, state-owned investors were mainly driving China’s overseas investment, however, in recent years, private sector companies have become increasingly active in the search for appropriate investment targets with the right fit. Typically, such a corporate strategic investor is a large volume player in its field or a diversified business group with ambitions to enter the premium segment or is seeking an inorganic growth strategy to enter related business areas. Except for a few multinational corporations, most players are limited in their international experience and follow an opportunistic approach to find their targets.
So, the best thing technology companies seeking funds can do is to have a well-prepared investment case that matches perfectly to the individual investor’s strategic needs and convincingly conveys the key selling arguments of the technology and its potential in this context. In order to attract investments, you need to know where technologies and markets globally are heading and you need to know exactly which problems the cleantech industry in China faces to develop and provide solutions. Of course, it is absolutely essential to have personal meetings with the key decision makers so a high-quality network that opens doors is vital. If you’ve managed to get this far and discussions are in progress, then being able to conduct smart negotiations to ensure the investment terms are fair and equitable is another must.
Certainly, efforts at a country level are also helpful. Already today, China’s outward investments by private enterprises and state entities, are seen by many countries as an attractive source of foreign capital, with China’s investments in foreign enterprises contributing around USD 40B in tax to their host countries as well as employment for 1.5 million people overseas. In fact, many countries have established governmental institutions in China to promote their region’s benefits and to attract Chinese investment. Nevertheless, they cannot replace a well-prepared process to position your company and to approach investors.
Through its corporate finance expertise, high-level investor network, and in-depth understanding of renewable energy market dynamics, Apricum is ideally placed to support companies seeking strategic and financial investors in China. For questions or comments, please contact Apricum’s Head of Southeast Asia Dr. Christoph Flink or Apricum Managing Partner Nikolai Dobrott.
 Source: China’s Ministry of Commerce MOFCOM
 Source: MOFCOM
 Source: MOFCOM