China’s Outward Investment in 2018: 5 point summary

_ Belt and Road Advisory. Beijing, 20 January 2019.

China’s Ministry of Commerce last week released its data for China’s 2018 outward direct investment (ODI). ODI saw a small amount of growth on 2017, but compositionally there were big changes. ODI into North America and Europe plummeted, whilst Belt and Road (BRI) countries saw rises. China is no longer investing primarily in commodities, and more in manufacturing as wages rise at home. Bilateral economic cooperation zones between China and the countries it invests in are becoming important vehicles for Chinese ODI. Global FDI fell by 40% in 2018, in contrast, China bucked the trend by posting broadly stable growth.

We summarize 2018’s development in five digestible points:

1) Total ODI remains broadly stable

China’s ODI rose 4.2% in 2018 to reach $130 billion. Non-financial ODI was broadly stable at $120 billion, while financial ODI more than doubled to close to $10 billion. While the total represents low growth on 2017, it still marks a sizeable drop versus the peak of 2016 where ODI amounted to $170 billion.

The drop versus 2016 is a result of tightening restrictions on capital being used for investment abroad. The State Administration of Foreign Exchange (SAFE) has said it will scrutinize investments in what it has called, “irrational” sectors including real estate, sports complexes, cinemas and other areas it deems unrelated to firms’ core businesses.

2) ODI into developed markets tanks

ODI into North America and Europe fell by 73% to a six-year low in 2018. Total ODI into the two continents amounted to only $30 billion versus $111 billion the year before. The US saw the steepest drop, amounting to a fall of 83% as more stringent approvals of Chinese investments kicked in. At least 21 Chinese acquisitions were cancelled by foreign regulators in 2018 (14 in North America and 7 in Europe).

3) ODI into Belt and Road countries increases

According to MOFCOM’s official data, ODI into BRI countries increased by 8.9%, amounting to over $15 billion, or 13% of the total. ODI into BRI countries therefore grew quicker than overall rates but as a percentage of the total, still stayed around the same. However, these numbers are based on 56 countries to have signed up for BRI by the end of 2017. Through 2018, China signed up a large number of countries onto BRI – particularly with African nations whom it signed 37 MoUs with at the Forum on China-Africa cooperation in September. If we include all these countries who had signed up by the end of 2018, BRI investments reflects 40% of China’s total ODI.

4) China is not buying up the world’s resources

Global perceptions of China’s investments abroad often center around resources and mining. Chinese investments may well have been focused in these sectors around a decade ago, but today the composition is very different. 2018 investment mainly went into leasing and business services, manufacturing and retail and wholesale, according to MOFCOM. At the same time, perhaps as SOEs have retreated, Chinese private firms make up a larger proportion of total investment. In 2018, they represented 44% of the total versus 31% in 2017.

5) The importance of overseas cooperation zones is growing

In its press conference highlighting the ODI data release, MOFCOM made special mention of the role of overseas cooperation zones such as the Ogun-Guangdong zone in Nigeria. Bottom of Form By the end of 2018, these overseas economic and trade cooperation zones had attracted close to 1,000 enterprises and brought in over $20 billion of investment. In 2018 alone, they drew in a further $2.5 billion of revenue. We can expect establishment and development of such zones to be a continued feature of China’s ODI going forward.

Source: https://beltandroad.ventures/

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