New report shows China’s growth into a global investment powerhouse

Note: The following is an edited translation of an article from the Chinese-language "Commentaries on International Affairs."

As more and more companies in China go global, questions have been raised both at home and abroad about the size of China’s overseas investment, the number of companies that have made direct investments abroad, and the potential future directions of overseas investment. The "2018 Report on Development of China’s Outward Investment and Economic Cooperation" issued by China’s Ministry of Commerce on Tuesday gave some clear answers.

The report reviews the trends, characteristics, and highlights of China's outbound direct investment in 2017. It analyzes China's role and influence in direct investment from a global perspective, and takes stock of the growth of the country’s multinational enterprises. The report also looks at the prospects for direct investment overseas in the near future.

Foreign investment [Photo: VCG]

The report says that by the end of 2017, China's outward investment had amounted to 1.8 trillion U.S. dollars, up by a third on the previous year, and accounting for 5.9 percent of the global total. In 2017, its investment outflows totaled 158.2 billion U.S. dollars, which, although down one-fifth on the previous year, still made China the world’s third largest global investor. By the end of 2017, 25,500 domestic investors had established 39,200 direct investment enterprises across 189 countries and regions, with total assets of 6 trillion U.S. dollars.

Clearly, the scale and influence of China’s investments are growing day by day. Given that international trade protectionism is on the rise, the future prospects of China-U.S. trade are unclear, and developed countries have generally strengthened their supervision over foreign investment, two of the government’s key tasks have been to optimize investments and control investment risks.

There have been clear indicators that China's investment strategy is gradually being implemented. From the report, one can see that the country’s industry structures have been optimized, and that irrational investments in sectors like real estate, hotels, cinemas, entertainment and sports clubs have been curbed. At the same time, investment in advanced manufacturing, modern service industries, and agriculture has grown rapidly.

There have also been improvements to the geographical spread of investment. A decade ago, investment was concentrated in neighboring countries in Southeast Asia and in the Commonwealth of Independent States. Now, the data from 2017 shows that China's investment in developed countries, such as those in North America and Europe, has gradually expanded, and looks set to continue on an upward trend. This reflects China’s economic transformation. Its domestic enterprises have an urgent need to import advanced technology and management experience, and at the same time are looking abroad for partners to expand their customer base. Belt and Road countries have also become hot spots and priorities for China’s overseas investment, which totaled 82 billion U.S. dollars between 2013 and 2017. In 2017 alone, China’s direct investment in Belt and Road countries reached 20 billion U.S. dollars, representing a yearly increase of more than 30 percent. And the investment industry is becoming increasingly diversified through mergers and acquisitions.

Also on Tuesday, the Commerce Ministry issued its 2018 edition of the “Guide for Countries and Regions on Overseas Investment and Cooperation”, a report looking back at how China’s outbound investment has performed. This document lays out the economic situation, policies and regulations, investment opportunities, and risks of investment in different countries and regions. It provides China’s enterprises with information about the problems they may encounter doing business in different countries, and offers advice that can help them as they expand their operations overseas.

As China’s outbound investment has developed, cooperation between the government and enterprises is becoming more and more tacit. Since the initial public release in 2009 of the “Report on Development of China’s Outward Investment and Economic Cooperation” and the “Guide for Countries and Regions on Overseas Investment and Cooperation”, the Commerce Ministry has continuously updated their content each year to reflect the changing strategic requirements of China's foreign investment. The two documents, which provide an analysis of the opportunities and challenges faced by investors, as well as potential future development trends, provide clear points of reference for enterprises going global. This makes them an important public service to investors. At the same time, as domestic enterprises have become increasingly market-oriented, they have attached growing importance to the guidance provided by the government. Their foreign direct investment has facilitated the country’s policy of becoming increasingly globalized. In doing so, they have helped turn China into an outbound foreign investment powerhouse.

(The article was originally written by Zhang Fei, deputy director of the Outbound Investment Research Institute with an academy of the Chinese Ministry of Commerce)