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Overseas direct investment may soar

By Ding Qingfen (China Daily)
Updated: 2010-02-25 08:54

China's overseas direct investment (ODI) may see a double-digit growth this year to around $60 billion, on the back of government support and overseas expansion plans of domestic firms, officials from the Ministry of Commerce (MOFCOM) said yesterday.

Though foreign direct investment slumped worldwide in 2009, China's ODI in the non-financial sectors rose 6.5 percent from a year earlier to $43.3 billion.

The growth momentum will be "sustained" this year, and would be even "more stronger", Liu Zuozhang, director general of the Investment Promotion Agency of MOFCOM, told China Daily.

"There is little doubt that the nation's ODI in 2010 will climb up to $60 billion," said Liu, adding the year-on-year growth could range from 15 to 39 percent.

During the first half of 2009, China's ODI slumped nearly 52 percent as the world economy was still in limbo and domestic enterprises shied away from investment. However, things started to change in the third quarter of last year after ODI rebounded nearly 190 percent year-on-year to $20.5 billion. This was fueled largely by the economic recovery in the United States and European Union and accelerated gross domestic product growth in China.

"The $60 billion target is certainly achievable, as domestic firms are now more convinced about investing abroad," said Steven Wang, head of the research institute of Standard Chartered in Shanghai.

According to the United Nations Conference on Trade and Development (UNCTAD), global foreign direct investment dropped 39 percent to around $1 trillion in 2009, against a high of $1.97 trillion in 2007.

China is one of the few countries that increased investments during the financial crisis. Most of the overseas investment projects were resource-oriented and backed by the Chinese government.

"This year, the government will continue its measures to help domestic companies spread their wings abroad along with better policies and services," said Wang Chao, assistant to the minister of commerce.

According to MOFCOM data, China spent nearly $2.36 billion for overseas investment in January this year. Over 70 percent of the investment was made through share purchase.

Forex reserves

"Overseas direct investment will accelerate this year," said Zhang Xiaoji, director of the Foreign Economic Relations Department of the Development Research Center under the State Council.

"The government's macro-economic policies and the enterprises' strong willingness are the main triggers for the growth," he said.

By the end of 2009, China had foreign exchange reserves of $2.4 trillion, accounting for 30.7 percent of the world total. Analysts are of the opinion that it is risky for China to hold such huge levels of forex while global economic prospects remain uncertain.

"A good way to reduce the risk would be if some of the forex reserves are used to help Chinese companies go overseas," said Zhang.

Overseas investment could also help Chinese companies better utilize their disposable funds, especially when the government is tightening policies in sectors such as real estate to curb inflation.

Yet another attraction for domestic firms is the relatively low prices needed to buy overseas assets.