Chinese firms have been actively pursuing global expansion for many years, especially after the implementation of the “One Belt, One Road” strategic initiatives in 2013. China’s outward Foreign Direct Investments (OFDI) peaked in 2016, predominately driven by mounting overseas merger and acquisition transactions. In today’s complex domestic and international environment, new opportunities and growing global market potential coexist with risks like regulatory barriers. Many Chinese firms are aspired to go overseas and to expand their ambitions beyond mere financial investments or playing an upstream role. As a result, China’s OFDI will likely see another boom with steady growth in the coming years, as predicted by EIU.
Figure 1: China’s Overseas Direct Investment and Forecast
Source: National Bureau of Statistics of China, EIU
*National Development and Reform Commission of China
Four sectors stand out particularly in the recent trend of going global: Internet-related businesses, new energy vehicles (NEVs), life sciences and solar photovoltaics (PVs). These four have consistently represented around 64% of China’s top 20 export items in terms of growth rate from 2019-2022. They have also emerged as leaders in the first wave of Chinese A-share listed firms issuing Global Depository Receipts (GDRs[1]), indicating their strong desire to venture into overseas markets.
Figure 2: Four Top Performers: NEVs (New energy vehicles), Internet+, Life science and PVs (Photovoltaics)
Source: General Administration of Customs of China, Wind, JLL Research
Remarks:
1. Export growth rate TOP20 calculation is based on the annual average of the four years from 2019 to 2022
2. Including the number of domestics listed companies that have issued and intend to issue GDR (Global Depository Receipts) by May 2023
Powered by advanced innovation, Chinese NEV carmakers are competing for more shares in the overseas NEV market, witnessing rising demand driven by “carbon neutral” targets and the recent energy crisis. Businesses in the Internet-related sector are also actively seeking new overseas opportunities and expanding their operations abroad to sustain their growth. In the trending field of life sciences, pharmaceutical firms are increasingly dedicated to independent drug R&D and commercialisation in overseas markets, however they still rely on the licensing-out strategy currently. Medical device firms are also enhancing their competitive advantages with increasing possession of cutting-edge technology to thrive globally.
The traditional cornerstone exporter— the solar PV sector—is also aggressively pursuing further overseas expansion in response to challenges like trade restrictions imposed by foreign nations as well as favourable policies abroad. Albeit they have distinct business models and supply chains, we observed one shared move in these four sectors of expediting “supply chain localisation”, building up their full supply chain capabilities overseas. In addition, Chinese firms from emerging sectors such as Smart Manufacturing and new FMCG are actively expanding global footprints with a focus on establishing complete value chains in a foreign land.
These observed sectors demonstrate a growing and diverse real estate demand overseas within the context of the “supply chain localisation” strategy. Different property types are needed to fulfil their specific supply chain needs, including R&D centres, manufacturing facilities, logistics, office spaces and retail stores. Learned from Chinese firms that pioneered in building overseas supply chains and business operations, both investment & construction demand and leasing demand exist for properties of local manufacturing sites, R&D centres and logistics facilities, while mainly leasing demand for office and retail spaces.
For instance, we have witnessed many such transactions from the abovementioned sectors in recent years. A top-tier Chinese NEV carmaker signed a 10-year office lease with an area of 18,720 square meters in San Jose, U.S. and also leased prime retail spaces in many foreign countries for its showrooms in 2022. A rapidly growing Chinese cross-border e-commerce firm leased several logistics facilities worldwide to serve as its overseas operation hubs, including a notable lease of a 16,000-square-meter warehouse in Canada. A famous Chinese pharmaceutical firm acquired a site of 42 acres in New Jersey, U.S. and immediately initiated the first-stage construction of 37,000 square meters, including a biologic manufacturing site, an R&D centre and office spaces.
These inspiring examples illustrate the evolution of Chinese firms’ overseas development and highlight the growing dedication to localising their supply chains abroad.
[1] Global Depository Receipts (GDRs) are commonly used by issuers to raise capital from international investors.
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