China's foreign investment often attracts unwanted attention - whether from locals upset at farmland passing into Chinese hands, or from geopolitical rivals concerned that China's purchases of natural resources entitle it to undue political influence with investee countries.
But for a country that accounts for 21 per cent of the world's population and close to 10 per cent of its GDP and global trade, China's share of total outward foreign direct investment (OFDI) is actually quite tiny, at just 1.5 per cent.
However, China is catching up - fast. The 1.5 per cent (US$300 billion) represents investments made over the past 20 years, but almost $200 billion of that has come in the past four years, despite the recent challenges of a slowing global economy. Economic research firm Rhodium Group predicts that by 2020, China will have invested $1 trillion-$2 trillion globally.
Behind such a forecast is the Chinese government's "Go Global" policy, adopted in 2010 as part of its 12th Five Year Plan, and later supplemented by a new goal - to achieve a balance of outward and inward FDI, which is currently much higher.
China is already hugely important as a source of capital for many industries internationally. While Chinese firms are established as major players in the global mergers and acquisitions landscape in many extractive industries, such as oil and gas, iron ore, copper and other metals, the range of Chinese investments is wide, by both industry and geography, although most is relatively close to home.
As of 2010, 72 per cent of China's OFDI was in Asia, predominantly Hong Kong. Europe accounted for 5 per cent, Africa 4 per cent, and North America and Australia 2.5 per cent each. Latin America and the Caribbean received 14 per cent, although the vast majority of this went into the tax havens of the Virgin Islands and the Caymans.
The trend in the past few years has been for greater geographic diversity. Investment in Europe and Africa, in particular, is growing quickly.
With prices of raw materials and other assets falling worldwide as a result of the global downturn, and the yuan relatively strong, Chinese investors have been able to snap up many bargains, keen to secure access to energy and raw materials abroad to support the demands of the country's continued industrialisation.
The biggest Chinese investors have been multinational companies such as China International Trading and Investment Corporation (CITIC), China Ocean Shipping (Group) Company (COSCO) and China State Construction Engineering Corporation. Railways and oil companies are also very active.
Chinese producers of consumer goods are also starting to invest more overseas as they seek to penetrate foreign markets through mergers and acquisitions to acquire brand names and market share.
Some examples: Lenovo, which acquired IBM's personal computer division in 2008 and later Germany's Medion; Geely, which paid $1.5 billion to take over Volvo in 2010; and Haier, which recently bought iconic New Zealand whiteware manufacturer Fisher Paykel.
For many Chinese executives, the acquisition of famous brands or a technological edge is the key element for breaking away from fierce competitors back home.
An important side benefit is the increasing exposure of Chinese MNCs to international business practices, which is likely to prompt them to seek further improvements in China's own institutional framework.
In future columns I plan to look more closely at the nature of Chinese investment in particular regions, including Asean, and what we in Thailand may be able to learn from this.
For more columns in this series please see www.bangkokbank.com
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Article source: http://www.thethailandlinks.com/2012/12/17/beijings-foreign-investment-moves-follow-2010-go-global-policy/
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