Oil refinery. Photo: iStock

Chinese state firms have stepped up overseas investment in the energy sector, with a focus moving from upstream projects such as exploration and production to downstream activities.

According to a recent report from Ernst & Young, Chinese mergers and acquisitions totaled US$9.9 billion in 2017, up a whopping 130% from the year before.

The Asset, reporting on the trend, spoke with Nicholas Song, a partner at the law firm Dechert who represents a number of China’s state-owned enterprises on cross-border deals.

“There has been more of a recent focus on downstream projects developments, such as petrochemical facilities and refineries,” Song said.

“In the last 12 months, there has not been much upstream M&A activity. The top three SOEs – China National Petroleum Corporation (CNPC), Sinopec, and China National Offshore Oil Corporation (CNOOC) – have not much upstream M&A activity. They’ve been focusing on digesting the assets they bought up to 2012,” he said.

He added that “Chinese SOEs had made a lot of significant investments and have been rationalizing and integrating these assets into their portfolios.”

The focus on downstream activity reduces risk associated with the investments, Song said, a trend that consulting firm Deloitte found is being seen across the globe.

Belt and Road countries have become a popular destination for the Chinese investments in the sector, Song said, though the geographical scope of the initiative has grown to envelop much of the globe.

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