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On China's rapid growth in outward FDI

By Ken Davies (China Daily)
Updated: 2009-08-03 07:54

The government is countering the downturn with a fiscal stimulus that will limit GDP deceleration, and credit has actually expanded.

The Organization for Economic Cooperation and Development (OECD) forecasts 6.3 percent GDP growth in 2009 and 8.5 percent in 2010.

China's resource needs will continue to increase, so it is seeking to secure reliable supplies by doing deals with producers.

Such deals made in the first quarter of 2009 already reportedly exceed China's record FDI outflow in 2008.

With $1.9 trillion in foreign-exchange reserves, a current-account surplus forecast by the OECD to rise to 11.7 percent of GDP in 2009 and no credit crunch, China can afford large investments overseas.

Challenges

Chinese multinationals can snap up companies on the cheap to acquire market share and brands in the developed world. Unsurprisingly, China is campaigning vociferously against investment protectionism.

China's worries are not unfounded. While there are those who welcome Chinese investment, for example in African countries happy to receive accompanying unconditional aid, there are also widespread suspicions about China's intentions.

The predominance of SOEs in China's outward FDI has raised fears that such investment might not be governed by normal commercial considerations and might even be an arm of the country's foreign and defense policies.

Related readings:  China's used FDI down 17.9% in H1  Outbound investment unlikely to outstrip FDI  Exports, FDI plunge amid global slowdown

Other challenges for China's outward FDI include raising the efficiency of natural resource exploitation and abandoning the preference for vertical integration of industrial production.

China's outward FDI accounts for not much more than 1 percent of the global total, which is far below the country's share of world trade.

However, this total is rising fast, and the country will eventually become a major source of global FDI.

The author is an economist and head of global relations in the investment division of the Paris-based Organization for Economic Cooperation and Development (OECD). The views expressed here are his own.

 

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