The China Analyst

In 2011, FDI into China amounted to USD 116 bn, up by 9.72% y-o-y. However, FDI decreased y-o-y for four consecutive months from November 2011 to February 2012. China's outbound investment in 2011 reached USD 60.1 bn, registering a slight growth of 1.8% y-o-y. Significant investments occurred both in the resources and non-resources sectors. By Beijing Axis Capital

Foreign Direct Investment into China

Summary

• In 2011, foreign direct investment (FDI) into China amounted to USD 116 bn, up by 9.72% y-o-y. Yet FDI into China fell for four consecutive months from November 2011 to February 2012 with concerns that the Chinese economy is set for slower growth in 2012
• In 2011, wholly foreign-owned enterprises were the major vehicles of investment in China, accounting for around 78% of total actually utilised capital
• In 2011, 87% of FDI in China originated from other Asian countries/regions. Hong Kong, as the main bridge for inbound investment into mainland China, is still the largest source of capital, contributing USD 77 bn or 66.4% of total FDI

Notable FDI Deals in China in 2011

• In February, Softbank Corp., a Tokyo-based company engaged in telecommunications and e-commerce, acquired a 35% stake in China's SynaCast Corporation, a Shanghai-based online media company, for USD 244 mn
• In March, Rhodia SA, a French specialty chemical manufacturer, completed its acquisition of a chemical facility owned by Suzhou HiPro Polymers Company for USD 489 mn
• In August, Japanese trading house Itochu Corp. agreed to buy a 30% stake in Chinese textile and apparel maker Shandong Ruyi Science and Technology Group in a deal worth USD 200 mn
• In October, Scotiabank, Canada's third-largest bank and the one with the biggest overseas presence acquired a 20% stake in China's state-owned Bank of Guangzhou for about USD 735 mn
• In November, Pearson agreed to buy China's Global Education and Technology Group for USD 294 mn
• In November, French chemical maker Arkema agreed to acquire two chemical firms in China for a total of USD 365 mn
• In December, US-based IT company Expedia concluded its acquisition of Renren's stake in online travel provider eLong for USD 72.4 mn

Chinese Outbound Foreign Direct Investment

Summary

• In 2011, China's OFDI amounted to USD 60.1 bn, an increase of 1.8% y-o-y
• In 2011, Beijing Axis Capital followed 122 overseas investment activities by Chinese companies (including ongoing transactions and concluded deals of previously announced transactions), among which 44 are resource-related investments and 78 are non-resources investments
• In terms of resources deals, Australia became the most attractive region for Chinese investors with 14 deals followed by North America and Africa, with 10 and 8 deals, respectively. In terms of non-resources deals, Europe was favoured the most by Chinese investors with 25 deals, followed by Asia and North America, with 20 and 16 deals, respectively. Africa was the least favoured with only two non-resources deals by Chinese investors
• In terms of deal size, oil & gas deals conducted by China's three energy giants, CNPC, Sinopec, and CNOOC, are notable. Two of the most recent big deals occurred in North and South America, with both exceeding USD 2 bn in deal size (see Galp Energia and OPTI Canada deals below)

Notable Chinese OFDI Deals in 2011

• In April, XCMC China, a wind energy company, acquired the Argentinian company Reta Region Wind Power for USD 200 mn
• In May, China National Chemical Corporation (CNCC) concluded an agreement with MA Industries, an Israeli farm chemicals company, to buy a 60% interest in MA for USD 1.44 bn
• In May, Fosun International, a leading private company in China, acquired 9.5% of the Greece luxury jewellery maker Folli Follie for USD 123 mn
• In July, China's largest agricultural group COFCO announced its acquisition of Tully Sugar, an Australian company, for USD 149 mn
• In November, Sinopec bought a 30% stake in the Brazilian unit of Portuguese oil company Galp Energia for USD 3.54 million
• In December, China Guangdong Nuclear Power Group announced the acquisition of Australia-based Kalahari Minerals for USD 990 mn
• In December, CNOOC completed the acquisition of the Canadian energy company OPTI Canada for USD 2.1 bn with the objective of securing oil resources in North America

China Financial Markets

China's Stock Markets in 2011-Q1 2012

• In 2011, China experienced a bearish market and there was a general downward trend in all of China's three major indexes
• Starting at 2,852.6, the Shanghai Stock Exchange Index finished at 2,199.4, down by approximately 23%, yet it still outperformed the Shenzhen Stock Exchange Index

• The Shenzhen Stock Exchange Index slumped by approximately 30% over the year from 12,714 to 8,919. The market lost its momentum from the beginning of H2, while it was relatively stable during the first half of 2011
• Like the other two indexes, the Growth Enterprise Market declined from 1,155 to 729.5 at the end of the year, registering a 37% plunge, despite a recovery period in Q3 after it fell to around 790 at the end of H1
• Despite the stock market indexes plunging significantly in 2011, the beginning of 2012 saw a recovery. The Shanghai Index and Shenzhen Index have climbed by around 9.5% and 16%, respectively, as of mid-March, while the Growth Market Index has also risen since the end of January