Chinese ODI Becomes More Rational and Balanced
China remains the third largest investor in the world despite a recent decline, but a tighter screening from developed countries may prove to be a challenge for Chinese ODI (outbound direct investment), an important means for China to acquire technology and management know-how.
Ministry of Commerce’s (MofCOM’s) newly released ‘China Foreign Investment Development Report’ shows that China’s ODI fell by 32 percent y-o-y in 2017 to US$124.63 bn, with non-financial ODI falling for the first time by 29.4 percent y-o-y. Likewise, data from the United Nations Conference on Trade and Development’s (UNCTAD’s) ‘2018 World Investment Report’ notes a 36 percent y-o-y drop to US$125 bn in 2017.
As irrational investment has been effectively restrained, the quality and returns of China’s ODI have improved, points out MofCOM’s report, noting a few structural changes in 2017
- ODI conducted by SOEs increased rapidly
- the share of ODI from China’s Midwestern regions and the three northeastern provinces increased
- the share of non-financial ODI further increased
- ODI in Europe and ASEAN grew
- construction of overseas cooperation zones sped up
James Zhan, UNCTAD Investment and Enterprise director attributed the decline to two factors:
- some of China’s overseas M&A deals were blocked by host countries due to security concerns
- China issued new rules to restrict ODI in real estate, hotels, and a few other sectors
Xing Houyuan, MofCOM Academy Foreign Investment Research Centre director sees the decline as a result of improved investment structure. Thanks to government regulation, ODI that offers little benefit to the national economy or could trigger external risks has been put on hold, while companies that can effectively utilize domestic and international resources are given the chance to ‘Go Global’, says Xing.
Xing also notes the active performance of Chinese MNCs last year, with a large number of M&A deals concentrated in advanced manufacturing and R&D, which Xing says can contribute to industrial upgrading at home.