(Yicai) Aug. 15 -- Chinese businesses’ overseas expansion strategy is shifting from the usual mergers & acquisitions to a more diversified approach, according to a recent report analyzing the strong surge in the country’s outbound foreign direct investment this year.

More Chinese companies are choosing greenfield investments, whereby the parent company sets up a subsidiary in a different country, and strategic partnerships to expand their global footprint, according to a report released by UK professional services network Ernst & Young’s China Overseas Investment Network yesterday.

Chinese firms going global have entered a stage of better quality and efficiency, said Zhou Zhaomei, global head of EY's China Overseas Investment Group. The enhancement of their core competitiveness and the leveraging of their strengths in innovation are expected to be key for them to penetrate overseas markets.

China’s overseas FDI soared 13.2 percent in the first half from a year earlier to USD85.3 billion, of which non-financial FDI jumped 16.6 percent to USD72.62 billion. Meanwhile, the value of overseas M&As by Chinese firms slumped 20.4 percent.

Southeast Asia and the Middle East are increasingly favored by Chinese investors thanks to their strong market potential and friendliness towards foreign investment, the report said. In terms of industries, electric cars, infrastructure and pharmaceuticals are popular.

Chinese companies along the new energy vehicle industrial chain are becoming more innovative and have developed technological strengths, London-based EY said. Almost all leading firms in the sector have built factories abroad.

During the period covered in the report, one battery manufacture said it would invest in a battery plant in Morocco, and other NEV makers have signed deals with local governments and other strategic partners to build factories in Spain, Slovakia, Thailand and Indonesia.

Chinese pharmaceutical companies usually adopt an out-licensing model, whereby they grant an organization in another country the rights to use their products or intellectual property, when expanding their global footprint. Their main markets are the US, the EU and emerging markets such as Association of Southeast Asian Nations and the Middle East. But they are also exploring new models of expanding abroad.

New contracts signed for overseas projects reached a new high in the first half, soaring 22 percent year on year to USD115.5 billion. Key projects include the China-Kyrgyzstan-Uzbekistan railway, in which the Chinese government is a major investor, and new data centers that the cloud arm of e-commerce giant Alibaba Group Holding plans to build in South Korea, Malaysia, the Philippines, Thailand and Mexico.

Editor: Kim Taylor