Building world-class Chinese companies with global competencies

Published: 4 June 2018

Under the pressure of an eye-catching growth last year, 2018 is expected to witness an overall slowdown of China's economic growth, according to the newly released Embarking on the Journey to a New Era of Opening-up — 2018 Deloitte Outbound Investment and Operation Guide for Chinese Business. However, economic opportunities along the Belt and Road (B&R) will increase, and as China embarks on its journey to construct a modern socialist economy, regulatory policies will continue to support rational investments and high-quality growth, laying a solid foundation for building world-class companies with global competencies.

In 2017, regulatory policies played a positive role in promoting rational investment. China's non-financial outbound foreign direct investment (FDI) totalled US$120 billion, down 29.4 percent from the previous year, and was dominated by leasing and business services, accounting for 29.1 percent of deal volume. Manufacturing and information transmission dropped into third place, taking up 15.9 percent. Due to a decrease in megadeals, announced outbound M&A deal value in 2017 totalled US$141 billion, down 32.6 percent from 2016. Southeast Asia attracted the most deals with Australia and the UK ranking second and third. By sector, Consumer & Industrial Products (C&IP) topped the list by deal value, followed by Energy & Resources, which climbed back into second place, and Technology, Media & Telecommunications (TMT) which dropped to third.

Regulatory policies will continue to promote high-quality investments in 2018. Internet companies led by Baidu, Alibaba and Tencent (BAT) are expected to play pivotal roles in outbound investment, transforming "Made in China" from cheap commodities to innovative products. Projects in areas like AI and biotechnology, which focus on the future and technological innovation, will be heavily favoured.

"China is making strides in transforming its economy. Quality of growth has been the mantra this year. 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," said Sitao Xu, chief economist at Deloitte China.

The Belt and Road Initiative (BRI) is writing a new chapter of deepening investment and trade, with strong performance in 2017. Non-financial outbound FDI into the 59 countries along the B&R represented 12 percent of total deal value, up 3.5 percent from 2016. Deloitte believes the BRI will be of increasing significance in 2018.

"A growing number of countries and organizations are actively involved in the BRI, promoting its deep development across the globe. The Initiative now looks beyond infrastructure projects, expanding to other diverse industries and sectors in destination countries. While Chinese State-owned Enterprises took the lead in the BRI's early stages, more private and foreign-funded enterprises are now taking part," said Norman Sze, Belt and Road Services China leader, Deloitte.

Traditional and emerging industries are expected to see new opportunities in international industrial capacity cooperation. The BRI is shaking off geographical limitations and creating a new platform for 'win-win' results through discussion and collaboration.

Over the past decade, "Going Global" has been the compelling force driving China's economic transformation. Many Chinese companies seized the opportunity and were able to tap international markets. "Meanwhile, companies are facing challenges from various perspectives. Now is the time for Chinese companies to not only go global, but to do so well enough and steadily enough to achieve truly internationalized operations and become absolutely world-class enterprises with global competencies," said Vivian Jiang, deputy CEO, Deloitte China.

Deloitte is devoted to provide guidance and one-stop services to Chinese companies throughout the outbound investment and operation lifecycle.

"We are committed to expanding our footprint as our clients expand theirs," explained Rosa Yang, Global Chinese Services Group chairman, Deloitte. "To stay ahead of the curve in prioritizing clients' needs, we continuously strive to evolve and adapt to changing marketplace dynamics, providing advice and solutions which address their most complex business challenges."

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.