China Accelerates Overseas Direct Investment

If projections hold true, 2014 will be the first year China’s investment overseas exceeds foreign direct investment into China. Foreign investment in China is expected to reach $120 billion this year, and it is predicted that China’s investment in other nations will surpass this amount. By acquiring foreign companies, Chinese firms will grow internationally and be able to contribute useful technologies and innovations to new markets.

At a recent press conference in Beijing, China’s Assistant Commerce Minister Zhang Xiangchen spoke of how China can help meet some of the economic and infrastructure needs of emerging markets in Latin America, Africa, Southeast Asia, and Eastern Europe. By investing abroad, China can supply these economies with machinery, rail and other shipping equipment, and construction and household items. The inflow of products and services to emerging economies, especially those related to improving infrastructure, can aid in the continued growth of these economies and increase the appeal of doing business there.

As China increases its overseas direct investment (ODI), its investment strategy is evolving. Traditionally, China has primarily concentrated on investing in energy and labor intensive firms. However, now more investments are flowing to high-technology companies. In the first half of 2014, China invested over $6 billion in higher value-added technology companies. Chinese ODI has also expanded rapidly in the construction sector, increasing by 129% in the first six months of 2014.

Another emerging trend in China’s overseas investments is that private companies are playing a much larger role in making deals abroad. In the past, government-controlled companies have made the majority of the business deals overseas; however, now private Chinese companies are responsible for 76% of total Chinese investment in the United States - China's top export partner.

China’s uptick in investments in nations abroad will without a doubt encourage trade and international business between China and the country receiving the investment. How will China fair as it transitions from global investee to global investor?