China Power

China Invests in the World

Chinese outward FDI is growing by leaps and bounds, spurred by Beijing’s economic strategy.

China Invests in the World
Credit: RMB image via Shutterstock

China’s outward foreign direct investment (FDI) for the first five months of 2015 was up nearly 50 percent from the same period in 2014, a Chinese Ministry of Commerce spokesperson said last week. According to Shen Danyang, as cited by People’s Daily, China’s non-financial investments in foreign markets totaled more than 278 billion RMB ($45 billion) from January to May of 2015 – up 47.4 percent year-on-year.

China’s total outward FDI has skyrocketed over the last 10 years, going from a mere $5.5 billion in 2004 to $101 billion in 2013, according to the UN Conference on Trade and Development. Recently, the trend of expanding outward FDI has accompanied falling inward FDI rates, as China’s economic growth slows. This has led China’s Commerce Ministry to predict that China will be “a net outbound investment country” in 2016.

The FDI push is largely being driven by China’s state-owned enterprises (SOEs), which account for 70 percent of China’s non-financial, outward FDI. The central government has urged state firms to ‘go global,’ promising financing support to encourage outward investments. The policy seems to be paying off.

Chinese investment is clearly targeted at certain regions over others. China’s outward FDI “saw a substantial increase” in the EU, ASEAN, and the United States, People’s Daily reported, while investments in Japan and Russia were roughly the same as during the first five months of 2014. Chinese FDI to Australia actually dropped during the same period, further proof that China’s shift to reduce overcapacity in its manufacturing sectors (with an accompanying decrease in demand for raw materials) could impact Australia’s economy.

China’s preferred investment destinations speak to the goals Beijing has for its state-owned firms. Beijing wants these firms to establish a foothold in the developed world, increasing brand awareness and reputations. China also hopes to use investments overseas to boost domestic firm’s innovation capabilities, which is the reason Chinese companies are pouring money into research and development in the United States. Chinese firms “are now using U.S. researchers to create patents ranging from new software to internet infrastructure,” Reuters reported on Sunday. Similarly, there’s been an uptick in patents filed by Chinese companies based on research by German and Japanese employees.

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In ASEAN and Africa, Chinese investments continue to reflect a more traditional approach – investments in infrastructure (including energy projects), mining, and manufacturing. Projects in the mining, construction, and manufacturing sectors accounted for 62 percent of total Chinese FDI in Africa as of 2013, according to the World Resources Institute. Likewise, China’s investments in ASEAN are dominated by infrastructure projects (in energy especially, followed by transportation) and mining projects, according to the Heritage Foundation. With the 2014 announcement of a $40 billion fund devoted to infrastructure construction along China’s Silk Road Economic Belt and Maritime Silk Road, Chinese companies will continue to be heavily involved in similar investments in both ASEAN and Central Asia.

China still has some catching up to do when it comes to outward FDI. The United States does more investment overseas than any other country, tallying $338 billion in 2013. Japan was second as $135 billion, with China in third. But if China’s numbers continue to register double-digit growth, spurred on by government policies, it will soon pass Japan.