China's Global Investments

Manila Bulletin, September 26, 2007 | Go to article overview

China's Global Investments


Byline: Francis N. Tolentino

News this week reported that China will soon be investing $ 1.6 billion in the development of the Diosdado Macapagal International Airport (DMIA) in Pampanga.

This further affirms the "go global" strategy now being employed by China in its efforts to become - like the United States - a major actor in both economic and political world affairs.

Undoubtedly, China is steadily rising as a major global player. China, by 2010, is expected to "emerge as a major global foreign direct investment source. Direct investment by China in other countries totalled US$ 12.3 billion (HK$ 95.94 billion) last year (2005), up by 123 percent from 2004, according to just-published data from the Ministry of Commerce and the National Bureau of Statistics."

Moreover, China's National Bureau of Statistics had revealed that at the first half of 2006, the country's fixed asset investments were more than 4.23 trillion yuan (US$ 530 billion). This is 29.8 percent higher than the previous year. China has also ventured into various direct investments and trade in almost 44 countries, most notably in Africa (where trade revenues is expected to rise to as high as $ 100 billion by 2010) and in Latin America. "According to merger specialists Waterous & Co., China has a budget of $ 55 billion to spend on overseas reserve acquisition in the next five years... Many of China's new investments worldwide are piplelines that will provide inland access to oil rather than by tankers, particularly through countries such as Myanmar/Burma and Kazakhstan." (Global Chinese Investments by Michele Markey - July 25, 2005).

China is also now the world's biggest holder of foreign exchange reserves. "Reserves topped US$ 1.2 trillion by the end of last month (March 2007)... What is more, they continue to climb by more than $ 20 billion a month on the back of China's ever-growing trade surplus."

In an article in the Touwai China Newsletter (Volume 1, Issue 2) entitled "Economic Motivations for China's Global Investments" the following were suggested as business reasons for China's "go global" strategy:

Escape brutal domestic market; access foreign distribution and sales networks; increase foreign exports; build international brands; bring a brand name back to China; acquire technology; acquire management and know-how; and seek a safe place to preserve wealth, diversify portfolio to reduce risk.

Apart from the above mentioned business reasons, the same article also cited economic motivations which has led China into investing in other countries:

The Chinese government is encouraging business to invest overseas to reduce accumulating foreign reserves. "The explosion in reserves is... a headache for the central bank. It creates liquidity which risks fuelling higher inflation, asset-price bubbles and imprudent bank lending." (The Economist)

The exchange rate is expected to change in the future and these changes will affect overseas investment decisions. "An appreciation of the RBM means higher export costs and lower overseas investment costs. …

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