Chinese outbound investment is on track for another high this year, with first-half deals topping US$54 billion, although a new report warns that Chinese firms escaping a sliding economy now have to face rising protectionism and a cybersecurity backlash.

The United States remains the most popular destination for Chinese dealmakers, with resource-rich Australia pipped for second place by Italy after the US$7.7 billion acquisition of Italian tyremaker Pirelli by ChemChina.

Deal flow is up 14 per cent over this time last year and "is an impressive gain in light of declining global commodities prices", says Derek Scissors, a resident scholar at the American Enterprise Institute, in a biannual report on Chinese deals.

"The true level of China's global spending is likely to rise, if unsteadily for years to come. There will be more money to spend and fewer attractive investment options at home as the economy there slows."

The institute recorded US$55.9 billion in deals in the first half, compared to a US$54.4 billion figure from China's Ministry of Commerce, suggesting this year's total will top US$100 billion and beat last year's record US$92.8 billion.

Where once China's overseas investment was dominated by energy-focused state-backed projects, the latest data suggests greater diversity and confidence among private-sector players as tie-ups in real estate, finance, and transport dominate.

Emblematic of this trend was US$10 billion from Chinese private equity players, the institute reported.

Although still small by developed-world standards, China outbound investment continued to excite deal brokers, and increasingly, national governments, Scissors writes.

In recent years, Canada and Australia have tightened inward investment laws, in part over fears that Chinese state-owned firms would gain control over swathes of natural resources.

 

Concerns also extend into cybersecurity, where Chinese-based hackers have been flagged as prolific players in the theft of intellectual property and government documents.

"Politics is the main barrier. It is unrealistic to expect distrust of Chinese enterprises to wane while Chinese cyberactivity waxes," Scissors says.

In the case of the US, where Hua Capital and Citic's US$1.9 billion acquisition of OmniVision was a first-half standout deal, Scissors suggests the government coordinates a "carrots and sticks" approach to identify cyber aggressors and blacklist Chinese firms using stolen intellectual property.

Data from the institute shows US$250 billion in Chinese deals is under threat from cancellations, cost overruns, and political conflict, while US$46.8 billion is at risk in Australia, the single-largest amount, linked to delayed mining ventures and project mismanagement after commodity prices collapsed. A further US$13.4 billion under threat is tied to construction projects in Libya where fighting forced many foreign investors to flee.

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