December 25, 2014
Increasing China’s outbound investment is part of Beijing’s long-term economic and political strategy.
China’s State Council issued a statement promising to promote outbound investment by Chinese firms, Xinhua reportedWednesday. Beijing plans to increase financing support to encourage Chinese companies to both invest and operate abroad. “The move will raise the international competitiveness of Chinese products, especially equipment products, boost structural upgrading of foreign trade and push manufacturing and financial sectors to a medium-high level,” the statement said.
The move to emphasize outbound investment is part of China’s push to revamp its economy, shifting away from a traditional reliance on domestic production and exports. With excess capacity at home, and a growing stockpile of foreign exchange reserves, Beijing is nudging Chinese firms to consider moving operations and investments overseas.
In fact, Chinese officials expect China’s outbound investments to surpass inbound investments for the first time in 2014. Chinese investments abroad could reach nearly $130 billion by year’s end, while inbound investment is expected to come in at less than last year’s $118 billion total. As the government adjusts to a “new normal” of slower economic growth, Chinese companies are being openly encouraged to invest in other markets.
Reuters reports in more detail on the financial policy changes in store. First, Beijing is removing red tape on currency exchanges, which will mean Chinese firms can exchange money without having to register with the government. The central government will also provide more support for “major equipment makers” seeking to grow their operations outside of China.
Within the general framework of supporting investment abroad, there are clear priorities for the Chinese government. Data on Chinese investments abroad gathered by the Heritage Foundation shows a clear emphasis on the energy sector – nearly $400 billion of China’s $870 billion in total investments worldwide are in the energy field. That includes major overseas oil and gas operations by Chinese state-owned enterprises, as well as China’s increasing focus on nuclear power. Given China’s growing energy needs, it’s hardly surprising that outbound investment would focus on securing energy supplies.
The second largest sector for China’s outbound investment, however, is transportation, which accounts for over $134 billion. This sector is poised to grow exponentially in coming years, as China continues to push forward its “one belt, one road” Silk Road projects. From building railroads in Eastern Europe to upgrading the Suez Canal, China’s Silk Road vision will require massive amounts of investment in infrastructure connecting East Asia with Europe – and Chinese companies, encouraged by Beijing, are at the front of the line for realizing these projects.
For China, transitioning to be a net investor rather than recipient of investment is a logical next step in its economic development. Beijing also sees a clear opportunity to meld strategic goals and foreign investment. In some countries, however, Chinese investment faces an uphill battle. A contract for a Chinese company to build a high-speed rail line in Mexico was scrapped soon after it was announced, due to scrutiny over the bidding process.On Monday, protests against a Chinese-run mine in Myanmar turned fatal when police shot and killed one of the demonstrators. Concerns over environmental impact and fair treatment of locals have dogged other Chinese projects, particularly in the developing world. China’s ability to regulate overseas operations by domestic companies is a work in progress — something Beijing will continue to work on as it pushes its companies to “go global.”
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