How much is China planning to invest in foreign countries? The country and its top business leaders plan to invest enough to become the world’s largest cross-border investor by the year 2020. Research shows that its offshore assets are about $6.4 trillion now but will triple to almost $20 trillion by the end of this decade. The findings were from the Mercator Institute for China Studies (Berlin) and Rhodium Group, which is an economic research firm. Here are some interesting facts:
- OFDI will increase greatly
In terms of the country’s Outbound Foreign Direct Investment (OFDI), the top business leaders will boost the investments in corporate startups, acquisitions and mergers. The figure is projected to increase from $744 billion now up to $2 trillion by the year 2020. This is a significant increase that’s worth noting because of the margin involved.
These figures are critical since official foreign OFDI statistics originating from China and receiving companies are generally considered to be low-quality. They also don’t give a complete snapshot of the true slows of investment.
In terms of the country’s OFDI investments from top business leaders and other CEOs in less than a decade, Chinese OFDI has skyrocketed to over $10 billion per year. That’s taken it to the top 3 exporters of international direct investment.
- It will greatly be based on reserves and portfolios
The investments China and its top business leaders will make by 2020 will be greatly based on portfolio investments and foreign exchange reserves. Increased revenue will be based on investments in various developed countries in the West.
- China made over 1,000 direct investments in the EU from 2000 to 2014
The figure spent was 46 billion and included the 28 EU nations. Most of China’s transactions were during the international financial crisis of 2008 to 2009.
The most foreign investments are made with the UK. During those years the UK made the biggest investment of 12.2 billion euros. It was followed by Germany (6.9 billion euros) and France (5.9 billion euros). These were major investments that included the nation’s top business leaders.
There was a drop in investments in 2013 from 2011-2012. However, the investments rose in 2014 and hit a record 14 billion for the entire year. The most money was an investor in sectors including energy, auto, real estate, and food.
- Foreign companies have difficulties investing in China
This could slow down the increase of China’s investment in international countries. The situation is ironic but it’s an important issue that involves China’s top business leaders.
China is a member of the G20 countries, but it’s one of the least open nations in the group. There’s also a lot of unofficial discrimination against companies based abroad.
There’s another issue that Chinese companies get several subsidies from the state. That includes cheap money/assistance from the national government when foreign investments are made. However, European companies can’t legally receive “state aid” when they bid for European assets.
However, the restriction about “state aid” only applied to EU companies. As a result, European investors including top business leaders could out-bid EU companies when competing for the continent’s assets. That was due to help from China’s capital.
- Europe has praised the increased investments
Europe, in particular, has supported the increase in China’s foreign investments. That’s especially true in terms of the international financial crisis and slow economic growth in the EU.
However, it’s also been reported that countries that China makes investments in will require some changes. They include changes in the attitude of the markets, and the politicians should take advantage of the various opportunities while reducing the risks.
Europe has unique opportunities that are based on features of the Chinese economy and the investments of its top business leaders. That includes the size and growth of the economy. However, there are still some particular concerns that are linked to the political and economic system of China. That includes the nation’s authoritarian system. There’s also the low openness to direct investment by foreign companies.
These situations create potential issues for foreign companies. However, they’re still willing to work out the issues in order to do business with Chinese companies and top business leaders due to the revenue potential. Due to that factor, the companies are willing to work out the details to improve the situation.
- China is playing catch-up
This might be surprising since it’s one of the world’s largest economies. However, the nation has greatly boosted its foreign investments and projections are that the trend will continue in the next years.
The country is unique and critical because its top business leaders have made it a major worldwide investor. It also has the potential to become the most critical driver of international FDI growth during the next decade.
An irony is that China I the largest trader of products. However, the country’s share of international financial international assets/liabilities was only 3.4% by the year 2011. The nation’s stock of OFDI as a ratio of FDP is just 7%. That’s compared to the US (38%) and Japan (20%) and Germany (47%).
- China made big investments in the US last year
Here are some of the biggest investments of China in the US during 2016.
- Dalian Wanda bought Legendary Entertainment for a $3.5 billion
- Qingdao Haier shelled out $5.6 billion to purchase GE Appliance
- Tianjin Tianhai purchased Ingram Micro for $6.07 billion
- HNA Tourism Group purchased shares of Hilton Worldwide for $6.49 billion
The biggest China purchase in the US last year was Anbang Insurance purchase of Strategic Hotels and Resort for $6.5 billion. These were some of the biggest purchases that included top business leaders. Anbang Insurance is one of the biggest insurance companies in China. The deal included 15 properties.
The seller of the deal pulled one property from the sale after security issues were raised by the US’ Committee on Foreign Investments. The final price of the transaction included a landmark hotel near a big San Diego naval base. The property was valued at about $1 billion, which boosted the total price tag to around $5.5 billion.