Chinese investors continued to invest at a record pace in Europe last year, making the region the top destination for Chinese outbound direct investment (ODI) in 2012, a report by a private equity fund showed Tuesday.

Chinese investment in Europe through mergers and acquisitions (M&As) surged by 21 percent year-on-year to reach $12.6 billion in 2012, confirming Europe as the top destination for Chinese ODI, Beijing-based A Capital said in the report.

Chinese investment through M&As in North America also increased in 2012, rising 18 percent year-on-year to $7.5 billion, the report said.

"Europe confirmed its leading position as European valuations remain moderate due to low growth perspectives and the absence of regulatory hurdles (such as) the Committee on Foreign Investment in the US," it said.

There is also a "strategic match between sectors of interest for Chinese investors and the European economy, in particular in sectors linked with urbanization," the report noted.

"Investment channels are becoming fewer as China's economy continues to slow. The huge amount of Chinese capital needs projects with high returns in Europe, which has a sound legal system, skilled workers and 27 different markets," Zhao Yongsheng, a visiting scholar at the Institute of European Studies of the Chinese Academy of Social Sciences, told the Global Times.

The services sector saw the largest growth in overseas deals in 2012, surging 165 percent year-on-year in terms of value, the report showed.

"This is positive for the Chinese economic transition toward a more value-added and consumer-oriented economy," the report said, noting that domestic firms need to acquire overseas skills, brands and technologies.

"With costs rising in the domestic market, leading Chinese players need to go up the value chain and incorporate more added value in their products, which can be gained either through R&D - but this takes time - or M&A," Andre Loesekrug-Pietri, chairman and managing partner of A Capital, told the Global Times Tuesday.