Embarking on the journey to a new era of opening-up 2018 Deloitte Outbound Investment Guide for Chinese Businesses Global Chinese Services Group | June 2018 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses Foreword 1 Part I – Overview 4 Retrospect and Prospect of Chinese Economy 4 Retrospect and Prospect of Chinese Outbound Investment 5 Greater China Outbound M&A Review 9 The Belt and Road Initiative to Drive a New Chapter of Globalization 15 Considerations and Preparations before Chinese Outbound Investment 17 Part II– Go Global with Chinese Companies 20 Challenges and Solutions for Chinese Outbound Investment 20 Deloitte Provide One-stop Solutions for Chinese Outbound Investment 25 Contact us 34 2 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses Foreword Deloitte opened its first China office in Shanghai as early as 1917, becoming one of the first foreign accounting organizations to establish a presence in China. Last year, Deloitte China celebrated its 100th anniversary. Over the past 100 years, Deloitte China is committed to making an impact that matters to clients, people and society, and has grown into a leading professional services organization with more than 13,000 people in 22 offices across Chinese Mainland, Hong Kong, Macau and Mongolia. Deloitte's journey in China is an epitome of China's social and economic development. Today, China is the world's second largest economy with a net capital outflow. With Chinese investors' footprints expanding all around the globe, the number of Chinese companies listed on 2017 Fortune Global 500 surged to 115 from 11 in year 2000. In addition to providing quality services to high-growth domestic market, Deloitte is committed to helping Chinese companies penetrate and lead the global markets. Based on this concept, Deloitte Global Chinese Services Group (GCSG) was established in 2003 to support Chinese companies to expand globally and move up the value chain. The guide was jointly compiled by Deloitte China and Deloitte Global Chinese Services Group professionals with local expertise. We hope that the guide could help Chinese companies engage in and make a greater impact in the global market, and become world-class multi-national companies. Patrick Tsang Deloitte China CEO Over the past decade, "Going Global" has been the compelling force for China's economic transformation and the steering guidance for Chinese enterprises' expansion overseas. An increasing number of Chinese enterprises investing heavily overseas, establishing globalized industrial chain and value chain. Meanwhile diversified challenges set in during the globalization. Now is the time to not only go global, but to go well enough and steady enough so as to materialize the verily internationalized operations and become the truly world- class enterprises with global competencies. In pursuit of service excellency during the process of Chinese enterprises going global, Deloitte deploys Chinese-speaking professionals across its global network to provide professional advisory and assistance anywhere, anytime. This Guide earmarks our efforts and sincerity to go global with you, and may you find it helpful for your globalization road map! Vivian Jiang Deloitte China Deputy CEO Deloitte China Markets & Global Network Leader 1 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses China is making strides in transforming its economy - quality of growth has been the mantra this year. Meanwhile, synchronized recovery in developed countries has shown a positive prospect for global growth. 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. The perspectives on Chinese economy and outbound investment in this guide are based on Deloitte's long-term study on the macro and industry trends, as well as deep communication with clients from all walks of life. Sitao Xu Chief Economist at Deloitte China An increasing number of countries and organizations are actively involved in the Belt and Road (B&R) Initiative to promote its deep development across the globe. Now, the Initiative looks beyond the infrastructure projects, expanded to other diverse industries and sectors in destination countries. While Chinese State-owned Enterprises took lead in the Initiative at the early stage, more private and foreign-funded enterprises are taking parts. It is suggested that the B&R Initiative has driven a new chapter of Chinese outbound investments, during which the overseas investment will witness a continuous growth in value and, more importantly, quality and structure improvement. To move up the value chain, Chinese companies shall strengthen their global competitiveness and resources allocation, and enhance risk management control. This guide offered investment overviews of countries and regions alongside the B&R, as well as key concerns of Chinese outbound investments. Hopefully this guide can be of assistance to companies considering entering or expanding their businesses in the overseas markets. Norman Sze Deloitte Belt and Road Services China Leader Deloitte Northern Region Managing Partner 2 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses As a trusted business advisor, Deloitte is fully committed to understanding and addressing the business needs and concerns of Chinese outbound investors. Our professionals possess the hands-on outbound experience, in-depth sector knowledge as well as on-the-ground understanding of local market practice advising them throughout the process of the transaction or project. Leveraging the global network of Deloitte, we are devoted to providing one-stop and high- quality multidisciplinary services in connection with their outbound investments regardless of their destination countries from sourcing to execution, from negotiation to integration. This guide provides advice and solutions for Chinese outbound investors to address their complex business challenges, shares Deloitte's distinctive Belt and Road Initiative services and our dedicated outbound investment team. This guide is hopefully to assist Chinese companies in identifying right strategies to guide their over-all investment journey. Derek Lai Vice Chair of Deloitte China Deloitte Global FA Belt & Road Leader 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. We are committed to expanding our footprints as our clients expand theirs. To stay ahead of the curve in putting the needs of clients as our priority, we continue our efforts in evolving and adapting to the changing dynamics of the marketplaces, and provides advice and solutions to clients to address their complex business challenges. 2018 Deloitte Outbound Investment Guide for Chinese Businesses, released in the joint efforts of Deloitte Global Chinese Services Group and Deloitte professionals across the globe, aims to provide insights on Chinese economy and outbound investment overview and outlook, solutions to outbound related business challenges, and highlights of selected countries as hot destinations. We hope this guide will be of great help to you and please feel free to contact us if professional advice on Chinese outbound investments are needed. Rosa Yang Deloitte Global Chinese Services Group Chairman Deloitte Global Network Affairs Managing Partner 3 2018 Deloitte Outbound Investment Guide for Chinese Businesses 2018 Deloitte Outbound Investment Guide for Chinese Businesses Part I – Overview 1.Retrospect and Prospect of a comparable performance in 2018. unsustainable in the medium term. Chinese Economy Therefore, it makes good sense for China will be tested when the cyclical Embracing a lower growth target China to embrace a slower GDP momentum starts losing steam. The closely-watched 19th Party growth target. In short, GDP growth shall slow down Congress has resulted in some clarity in 2018. Considering the tightening on economic policy. As expected, Economic growth certainly comes of labour market, China should lower certain landmark years (e.g. 2020, with costs (e.g. exploding credit its expectation on GDP growth (to 2035, and 2050) were given additional growth). Indeed, the new mantra, 6.0% or even lower). Deleveraging weight with regard to economic coined by President Xi regarding will become more urgent given the and social welfare targets. However, the ‘mismatch between uneven Federal Reserve's tightening policies the GDP growth target has been development and people's desire and the decision made during Trump's deemphasized. This is a welcome for a better life’, suggests that visit to China, which would limit the development given that de-leverage policymakers had become to realize domestic credit growth and lead to and SOE reforms can only proceed that economic development was not further opening of financial industry against a backdrop of slower growth. panacea for everything. We believe (the foreign investment proportion Looking at the contributions from that China's economic resilience is in securities companies, fund the property sector