International Law

Exploding The Myths Of China's Foreign Investments.

By Dan

The China Economic Review published an article by CLB Co-blogger Steve Dickinson in its November issue. Steve's article is on the myths of China's foreign direct investment and is entitled, Exploding the Myth: China has emerged as a global FDI power, giving birth to a few misconceptions in the process.

Steve's thesis is that the bromides that China is focusing its foreign investments on "pariah" regimes and investing for political purposes during the economic downturn are simply not borne out by the facts:

The rise of China as a player has given rise to two varieties of myth. First, Beijing is using its FDI muscle to make politically motivated investments in "pariah" regimes as a bulwark against the West. Second, it is taking advantage of the global economic crisis to snap up key assets around the world at bargain prices.

Sudan is routinely flagged as the example of Chinese investment in undeveloped and repressive regimes, but it hardly represents a consistent theme. Chinese outbound FDI is disproportionately focused on highly developed modern financial centers such as Hong Kong (63%), Cayman Islands (9.5%), Australia (4.3%), Luxembourg (4%), British Virgin Islands (BVI, 2.9%), Singapore (2.5%) and the US (1.6%). 

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Neither is the Chinese FDI program a land-and-resources grab focused on underdeveloped regions like Africa. Only 2.6% of total Chinese investment reached Africa in 2009, the lowest for any region in the world. The figure of US$1.44 billion was down 73.8% on the previous year. Asia was the overwhelming target, attracting 71.4% of FDI, followed by Latin America (13%, primarily in the Caymans and the British Virgin Islands).

The major investment trend in 2009 was the about-turn on Africa, which was compensated for by a marked rise in capital entering Europe (up 280% year-on-year) and North America (up 320%).

China foreign investment is also not nearly as focused on grabbing land in the undeveloped world:

As for claims that China is engaged in a land grab in the undeveloped world to secure access to land and other food resources in order to feed its growing population, again they are not borne out by the statistics.

Chinese investment in 2009 in agriculture, forestry, fisheries and animal husbandry amounted to US$340 million, a mere 0.6% of the total. This compares with 51.2% for finance and commercial services - largely investment funds in tax havens such as Hong Kong, Singapore, the Caymans and Luxembourg. These sophisticated financial investments are worlds away from purchases of raw land for farms that is a centerpiece of a common myth about Chinese FDI.

It is, however, true that China FDI has involved substantial investments in natural resources:

It is true that China does emphasize investment in mineral assets. Last year, FDI targeting minerals and mining amounted to US$13.34 billion, concentrating on petroleum, natural gas, and ferrous and non-ferrous metals. Though this is a tiny amount compared to the investments of the Western energy and mining giants, it does constitute 23.6% of China's FDI for 2009.

Though We can expect China to compete with the West for natural resources, "there is no evidence whatsoever that Chinese companies have made any moves to acquire key productive assets and real estate around the world during the global financial crisis: Investment in these areas is remarkably low: real estate (1.6%), manufacturing (4%), research and development (1.4%), energy production (0.6%)."

Steve concludes his article by stating that figuring out what is really behind China's FDI strategy will be "more productive than pursuing the myths that seem to be occupying most analysts."

Full post as published by China Law Blog on November 12, 2010 (boomark / email).