Rise in foreign direct investment largely driven by domestic firms

Even as global outward foreign direct investment contracted last year, China set records in this area, becoming the world's third-largest investor, a government report said on Monday.

China's outbound FDI rose 17.6 percent year-on-year in 2012 to a record high of $87.8 billion, according to the 2012 Statistical Bulletin of China's Outward Foreign Direct Investment, which was released by the Ministry of Commerce, the National Bureau of Statistics and the State Administration of Foreign Exchange.

The report was released during the 17th China International Fair for Investment and Trade, held in Xiamen, Fujian province, which began on Sunday and closes on Wednesday.

Global ODI slid 17 percent last year, amid uncertainties confronting the world economy.

China's increase made the nation the world's third-largest investor last year after the United States and Japan, for the first time since the country began to release the data a decade ago.

China was the world's sixth-largest investor in 2011, with an outward FDI flow of $74.65 billion, according to last year's report.

"The Chinese government introduced measures to encourage outbound direct investment in pursuit of the ‘going abroad' strategy, and the country's outward FDI maintained robust growth in recent years," said Zhou Zhencheng, commercial counselor of the department of outward investment and economic cooperation of the Ministry of Commerce.

Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation, a think tank of the ministry, said that the surge in outward FDI was mainly driven by domestic enterprises eager to tap overseas markets and profit from using global resources.

"Debt crises and slowing growth in developed economies opened up great opportunities for Chinese enterprises to invest abroad, and the renminbi's appreciation helped the process," Huo said.

The nation's non-financial ODI went up 13.3 percent last year to $77.73 billion, accounting for 88.5 percent of the total.

Financial ODI surged 65.9 percent to $10.07 billion, according to the bulletin.

Flows to the US jumped 123.5 percent to $4.05 billion, making the nation the second-largest destination for China's ODI.

Total ODI to developed economies, at about $13.51 billion, was virtually flat year-on-year at $13.42 billion, according to the bulletin.

Hong Kong received 58.4 percent — $51.24 billion — of the mainland's ODI.

The city, with its well-developed services in finance, accounting and consulting, serves as a gateway for domestic enterprises to explore international markets, according to Victoria Tang, associate director-general of Invest Hong Kong, a body under the special administrative region's government charged with promoting investment.

Outward FDI to the British Virgin Islands and Cayman Islands, where Chinese investors set up businesses to bypass investment restrictions in developed economies, slid 72.5 percent to $3.07 billion in 2012.

Developed economies where growth has been weak since the 2008 financial crisis have welcomed ODI from China, which has huge foreign-exchange reserves and cash-rich enterprises, Zhou said.

"The fast increase of China's outward FDI also showed that the country's manufacturing is significantly gaining international competitiveness.

"Further, the country is eager to establish transnational cooperation through mergers and acquisitions in international markets," Huo added.

In 2012, Chinese enterprises completed 457 outward M&A transactions valued at $43.4 billion. Those were record highs for both numbers and value.

These M&As covered 10 sectors, including mining, electricity, culture, manufacturing and transportation.

China's ODI grew 41.6 percent annually between 2002 and 2012. The government has set a goal of increasing ODI at an average annual rate of 17 percent through 2015, when it is forecast to reach $150 billion.

The full-year figure this year "is likely to see China's outward investment grow more than 15 percent", Zhou said.

He added that the robust growth will be maintained in the near future, in view of the country's economic restructuring and the move by its industries to shed excess capital and invest their cash.

As of the end of 2012, China's total outstanding ODI was $531.94 billion, the 13th-largest in the world, said the report.

The amount was small compared with the US outward FDI stock of $5.19 trillion and the United Kingdom's $1.8 trillion, the report said, because "China's outbound direct investment took off rather late".

Chinese investors have established about 22,000 overseas enterprises in 179 countries and regions, "and about 79.2 percent of them made profits or maintained a balance", Zhou said.

He added that Chinese enterprises are facing rising risks and challenges, including political unrest in Africa and Southeast Asia.

Other challenges include increasing competition from developed economies and restrictions in those markets.