[China]China's outbound investment rises in both quantity and quality
Author: Pan Yuanyuan, Associate Researcher, International Investment Research Department, National Institute for Global Strategy, Chinese Academy of Social Sciences
In the future, China's outbound investment will continue to develop steadily and improve its quality and returns. China's position in global outward FDI will continue to climb and play a greater role in promoting global growth.
Recently, China's Ministry of Commerce and other departments jointly released the "Statistical Bulletin on China's Outward Foreign Direct Investment in the Year 2021", and the remarkable growth of China's outward investment has sparked international attention. According to a recent article by the Turkish Radio and Television Corporation International, Chinese investment has brought confidence to the African continent. The Belt and Road Initiative has driven a surge in Chinese investment in Africa's infrastructure. Low-interest loans and large-scale infrastructure projects have won the support of African countries.
The Financial Times reports that China is rapidly expanding its trade, investment and influence in Latin America as it seeks to secure ample supplies of key commodities such as soybeans, copper and lithium. Over the past 15 years, China has provided significant state-owned bank loans to Latin America and the Caribbean, and has made tens of billions of dollars in corporate acquisitions over the last decade, winning local recognition. China's promotion of the BRI in Latin America is increasingly expected by Latin American countries and policy makers.
According to the Ministry of Commerce and other departments, China's outward FDI flows in 2021 were US$178.82 billion, an increase of 16.3% over the previous year. China's outward foreign direct investment is characterised by "more weight and quality, and steady but refined progress".
In terms of quantity, China's importance in global direct investment has been steadily increasing, and since 2003, China's outward direct investment (ODI) has continued to grow, ranking among the top three global ODI flows for ten consecutive years. 10.5% and 6.7% respectively. China has become an important driver of global ODI growth.
In terms of quality, the structure of China's outbound investment has been optimised in three main ways: firstly, the investment sectors have been optimised and outbound investment has enhanced the position of Chinese enterprises in the global value chain. In recent years, China's outbound investment in leasing and business services, wholesale and retail, finance and other industries has grown significantly, with outbound investment in the manufacturing sector growing particularly significantly. Secondly, investment in countries and regions has been optimised, with China's investment in developed and developing countries being more balanced, and the trend of China's global investment layout being positive. Thirdly, the main bodies of investment have been optimised, with both state-owned and private enterprises making parallel outbound investments, each with its own focus.
The optimisation of China's outbound investment growth and structure has been driven by a combination of factors. Domestically, on the one hand, outbound investment returns are crucial to the growth of China's domestic wealth, and improving investment returns requires steady investment development and continued improvement in investment structure. On the other hand, Chinese enterprises have accumulated certain advantages in terms of technology level, management experience and resource network, and can effectively combine their own advantages with the resources of the host country through outbound investment to achieve a win-win situation for both China and the host country. This is also an inherent requirement for the development and growth of Chinese enterprises. From an international perspective, global protectionism and investment risks have intensified, with developed countries facing economic difficulties such as high inflation and rising production costs increasing international investment risks, and investments in developing countries may also be affected by risk factors such as the unsynchronised economic recovery of various countries, unstable epidemic conditions and geopolitics. Optimising the structure of countries, industries and subjects for outbound investment is an inevitable choice for Chinese enterprises to reduce investment risks in the face of changing external constraints.
It is worth noting that China's growing investment in developing countries has injected a steady stream of power into them. By the end of 2021, China had set up more than 11,000 overseas enterprises along the BRI countries, and in 2021, China's direct investment in countries along the BRI reached a record high of US$24.15 billion, with a year-end stock of US$213.84 billion. The year-end stock was US$213.84 billion. The most important feature of China's investment in developing countries is that Chinese outbound investment is not a one-off investment with political conditions attached or unilateral benefits, but an investment that enhances the host country's capacity for autonomous economic growth and helps it accelerate the achievement of sustainable development goals. Chinese outbound investment not only provides developing countries with much-needed capital for development and closes the investment and financing gap in developing countries, but also provides host countries with the infrastructure necessary for economic development through a high proportion of investment in areas such as manufacturing and infrastructure construction, and promotes host countries to upgrade their production levels and innovation capabilities. At the same time, the employment opportunities created by Chinese ODIs are conducive to narrowing the income gap in host countries and helping developing countries achieve sustainable development. By integrating into communities and providing scholarships and training, Chinese companies effectively help host countries to upgrade their production skills and foster endogenous dynamics of development. In addition, Chinese outbound investment can help developing countries reduce emissions. Chinese ODIs focus on adopting relatively clean technologies and producing in compliance with global environmental standards for mid- to high-end industries, prompting host countries to improve energy conservation and emission reduction in their production processes.
In the future, China's outbound investment will continue to develop steadily and improve the quality and returns of its investments. The share of Chinese outbound direct investment in China's total overseas assets will continue to rise, and outbound direct investment will balance the risk-return relationship and aim to improve the overall return on investment. To this end, Chinese companies need to improve their offshore investment capabilities and levels, and focus more on countries with stable and good economic growth prospects and manageable political and social risks. It is foreseeable that China's position in global OFDI will continue to climb and will play a greater role in promoting global growth.