Fueling Global Energy Finance: The Emergence of China in Global Energy Investment

Abstract

Global financial investments in energy production and consumption are significant since all aspects of a country’s economic activity and development require energy resources. In this paper, we assess the investment trends in the global energy sector during, before, and after the financial crisis of 2008 using two data sources: (1) The Dealogic database providing cross-border mergers and acquisitions (M&As); and (2) The “fDi Intelligence fDi Markets” database providing Greenfield (GF) foreign direct investments (FDIs). We highlight the changing role of China and compare its M&A and GF FDI activities to those of the United States, Germany, UK, Japan, and others during this period. We analyze the investments along each segment of the energy supply chain of these countries to highlight the geographical origin and destination, sectoral distribution, and cross-border M&As and GF FDI activities. Our paper shows that while energy accounts for nearly 25% of all GF FDI, it only accounts for 4.82% of total M&A FDI activity in the period 1996–2016. China’s outbound FDI in the energy sector started its ascent around the time of the global recession and accelerated in the post-recession phase. In the energy sector, China’s outbound cross-border M&As are similar to the USA or UK, located mostly in the developed countries of the West, while their outbound GF investments are spread across many countries around the world. Also, China’s outbound energy M&As are concentrated in certain segments of the energy supply chain (extraction, and electricity generation) while their GF FDI covers other segments (electricity generation and power/pipeline transmission) of the energy supply chain.

Leadership aspects of regional development, energy security, and energy consumption

“…Generally, the relatively rapid and almost simultaneous emergence of India and China as major players in the global energy scene has raised questions about whether adjustments to the existing international energy system are needed and whether new institutions for energy and environmental security will evolve (Tripahi et al 2016;or Gopal et al 2018). It is in the collective interest of all nations that India and China become full members of the international energy community and are responsible stakeholders who are responding to their growing importance to the global energy markets.…”

Emerging clean energy markets are drivers for solar and wind industries

“…Eight of the world's top ten solar energy suppliers are based in China, and the three largest Chinese wind energy companies collectively have the largest share of the wind energy market [5,6]. Moreover, China is the only developing country to rank among the top 10 recipients of net cross-border investment and the top 10 investors, with China being the only emerging market country in the latter category [7]. China set a record for net cross-border investment since 2015, and up to the first half of 2017, the country has invested $ 2.23 billion in wind and solar energy in 11 other developing countries thus attracting domestic investment in these industries from 13 countries for a total of US $ 1.34 billion [8].…”