China to be Net Foreign Investor by 2017: EIU

China’s role in the global economy is changing. The country’s imports have started to catch up with its exports, and perceptions of China as an overseas investor have altered dramatically. The Economist Intelligence Unit’s ‘China Going Global Investment Index’ predicts that China will be a net investor in the world economy by 2017.

 

In 2012, China accounted for 11.6% of global output and 6.7% of outward direct investment (ODI), according to The Economist Intelligence Unit’s estimates. Annual investment outflows in China have grown at an average rate of 35% per year since 2005, reaching US$115bn in 2012. That has pushed China up the global ODI rankings from 16th place in 2011 to 3rd place (excluding tax havens) last year, after the US and Japan.

 

In light of this, and with increasing numbers of Chinese firms looking to “go global” and seek investment opportunities overseas, The EIU’s index has identified the most attractive destinations for China’s investment based on opportunity and risk, finding that the US, Singapore and Hong Kong are the three most attractive destinations for Chinese foreign direct investment.

 

The changing composition of Chinese ODI

Chinese firms are currently active in 119 countries and territories. The index demonstrates that Chinese firms are not just interested in frontier markets; many attractive destinations for the world’s second largest economy are large and wealthy OECD countries with big domestic markets and valuable brands and technologies. Seven of the top 10 countries are OECD members, suggesting that, on balance, developed economies provide significant investment opportunities for Chinese firms.

 

Dr Liu Qian, Deputy Director, Access China, based in The EIU’s Beijing office, explains: “Outward direct investment from China has soared in recent years. Private players are becoming increasingly active in international expansion and the primary motivation for investing overseas will be to tap new markets, as well as to acquire new brands and technology.”

Top countries and territories for Chinese outward investment
The US tops the list as the most attractive destination for Chinese foreign direct investment. The US leads in market size, scores highly for its endowment of natural resources, has the world’s best stock of existing brands, is highly innovative and has high human capital and a relatively stable business environment. These elements combined led it to be ranked number one.

 

Singapore and Hong Kong also score well for their favourable business environment, openness to trade and strong cultural links to China. In fact, these two markets are scored as the two least risky destinations for Chinese FDI and this, combined with the fact they also score in the top quartile for opportunity, leads to their high overall performance. These two city economies have high levels of GDP per capita, and while they are not large economies, they provide an excellent base for Chinese firms to access regional and global markets as a result of their good transport infrastructure and open economic policies.

 

Despite President Xi Jinping’s recent speech highlighting China’s intention to deepen economic and trade relations with Africa, and the billions of dollars worth of deals being signed with South Africa at the BRICS summit, the bottom three countries in the index are Angola, Nigeria and Kenya.

 

“This is due to their risky environments, lack of technology and low per capita income levels which all make doing business difficult. The lack of complexity and diversity of African opportunities does not help with Africa’s overall rankings, either.” Dr Liu Qian comments.

 

Xu Sitao, Global Forecasting Director, China, based in The EIU’s Beijing Office, concludes: “Chinese firms' appetite for going global is set to be one of the defining themes of the global economy in the current decade. The challenge for host country governments, particularly those in developing countries, will be to formulate and implement strategies to ensure that their own businesses and consumers gain the most from it.”
 

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