China's Increase In Outbound Foreign Investments

Posted on February 14, 2013 at 11:02 PM

Chinese outbound foreign direct investments (ODFI) in December 2012 were the largest on record, demonstrating that the world's largest recipient of foreign direct investments over the last decade has begun to return the favor.

According to the Chinese Ministry of Commerce, Chinese non-financial ODFI totaled $14.7 billion in December and $24.7 billion in the fourth quarter. December was also the first month on record in which outbound FDI exceeded inbound FDI. The fast growth of China's ODFI shows the improved competitiveness of Chinese companies. With foreign reserves of $3 trillion in hand, the Chinese refuse to sit back and watch the assets depreciate, rather they take the valuable capital the world has rightly invested in it and make their own contribution to global prosperity.

By the end of 2011 Chinese investors had poured money into 177 countries and regions, covering 72 percent of the world's total. Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation, believes that such investment structure was attributed to the comparatively low market access requirements and low production costs in developing countries. "Developed countries have stringent market access restrictions, while Chinese investment is more welcome in developing countries," Mei said. "Plus, Chinese companies tend to invest in developing countries because of the low production costs there, and many of them remain incapable of operating in developed countries".  Clearly, Chinese investors are getting hungrier for foreign assets and it would be wise for companies of other nationalities to see their growth and join in pioneering new frontiers in infrastructure and portals for new ventures in developing countries.

Although China's overseas investment was mostly concentrated in developing countries, that in the developed countries has been on the rise at a rather fast pace. Rhodium Group, a New York based consultancy that analyzes global trends said that Chinese investment in United States rose nearly 39 percent year on year in 2011 and increased by almost 30 percent during the first seven months of this year. China has also set the stage for a record year for outbound investment to the United States with Chinese firms completing investment transactions worth $6.3 billion in the first three quarters of 2012.

However, as Chinese companies are investing more in the global market, they don't seem to slow the rate of consumption of products insourced from the U.S. Rather than outsourcing their operations to China's low-cost environment to produce cheap goods for U.S. consumers, multinational corporations are pouring billions into China to meet demand from the rapidly growing Chinese middle class.

In 2010 General Motors (GM) sold more cars in China than in the United States for the first time, but did not export any cars from China back to its home market. GM, which closed 13 U.S. plants since its bankruptcy filing in 2009, has opened 15 plants in China in the last 10 years. In addition, Yum Brands (YUM, Fortune 500), owner of fast-chains like KFC and Pizza Hut, reported $1.2 billion in Chinese sales in its most recent quarter, surpassing its declining U.S. sales for the first time. It added 245 restaurants in China in the first nine months of 2011 while selling off its U.S. locations.

Overall, the increase in outbound investments by Chinese companies doesn't terminate the rate by which U.S. companies are investing into the Chinese markets. Rather, Chinese companies and business people are coming to the conclusion that they have secured their own place in the global market; it is their turn to make investments into economies with the potential for rapid growth.

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