Understanding China's Efforts to Invest Overseas


The old axiom, “there’s no such thing as bad publicity,” has not been the case for China’s efforts to invest overseas, which have been plagued by negative attention. Highly-publicized investment failures such as the China National Offshore Oil Corporation’s blocked 2005 bid for UNOCAL and the collapse of a $1.7 billion Chinese housing investment project in San Francisco earlier this month have set the narrative, but do not tell the whole story. Public understanding of China’s outward foreign direct investment (OFDI), particularly in the United States, is not based on facts.

The growth of investment in the last 10 years has been astronomical, largely because the starting figure is so low: OFDI totaled just $2.5 billion in 2002.  In comparison, official numbers, according to the Economist,  put total ODI at over $77 billion in 2012, an increase of 12.6% from 2011 and enough to make China the sixth-largest global investor.

This figure is still rather small, however.  Context is important here: Belgium, the Netherlands, and Spain have larger holdings than China, according to the Economist.  Additionally, though investment in the United States has grown substantially (39 percent year-on-year from 2010 to 2011, for example) the $50 billion invested from 2005-2012 comprises just 1.8 percent of the U.S.’ total inward investment for that period, according to a 2012 report by the Heritage Foundation.

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Investment in Europe is dramatically rising: the Chinese Ministry of Commerce says that investment in the EU increased 280 percent year on year from 2008 to 2009, doubled in 2010, and then rose 22 percent in 2011. In 2012, Chinese Mergers & Acquisitions investment in Europe reached $12.6 billion.

On the whole, however, Chinese investment in the United States and Europe are very minor pieces of the puzzle. In 2011 70 percent of China’s OFDI was directed to Asian countries (but declined sharply in 2012), and 89 percent to developing countries.

Much of this investment has been sparked by the actions of the Chinese government. Like the exhortation “Go West, young man,” China is telling its companies to “go global,” and invest overseas.  This strategy was included in the 12th Five Year Plan (2011-2015), adopted in March 2011, and has largely focused on state-owned enterprises (SOEs), which are given subsidies and funding to accomplish this goal.  According to the Heritage report cited above, in 2005, SOEs made 100% of large investments.  Six years later, that percentage had fallen to 89%–still a massive monopoly.  That being said, a drop in the SOEs’ share of investment (however minor) is a positive sign for the emergence of private enterprise.

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