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China’s Pivot to World Markets

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by Kaiser Kuo

China’s overseas direct investment surpassed for the first time its total inbound foreign direct investment (FDI) for 2017, with a roughly 20% annual growth in recent years and surging by 50% in 2016. China now ranks as the world’s second largest source of outbound direct investment, behind only the United States. With President Xi Jinping’s announcement at the World Economic Forum that China expects to invest $750 billion more in the coming five years, a lively conversation about the reasons for and the implications of China’s pivot to world markets – convened by one of China’s most highly regarded financial journalists, Hu Shuli, Editor-in-Chief, Caixin Media, People’s Republic of China – was timely indeed.

While the preponderance of China’s overseas investment continues to go to the developed world –an estimated 80% to Europe and the US – China’s appetite for natural resources and the exigencies of geopolitics have combined to see substantial investments in the global South in recent years. Nouriel Roubini, Professor of Economics, Stern School of Business, New York University, USA, said that China’s overseas investment push is, in part, a diversification strategy from a country suffering from domestic overinvestment and overcapacity in steel and concrete, and must also be seen in the context of a litany of other plans: the One Belt, One Road initiative; the New Development Bank; the Asian Infrastructure Investment Bank; and regional trade deals like the Regional Comprehensive Economic Partnership. Taken together, these constitute an “economic international statecraft strategy” for Beijing.

While Chinese investment in Africa is frequently commented on, China’s push into Latin America has happened more quietly. Liu Liehong, President and Chief Executive Officer, China Electronics Corporation, said his company has set up manufacturing facilities as well as market operations in Ecuador, for example. Alicia Bárcena Ibarra, United Nations Economic Commission for Latin America and the Caribbean (ECLAC), observed that relations between Latin American nations, on the one hand, and China, on the other, have changed as they have become more familiar with one another, and especially as Chinese companies have sought to allay initial fears that China’s intention is simply to exploit Latin American natural resources.

Ibarra noted that President Xi delivered an important speech in Lima on the very day that presidential candidate Donald Trump announced that, if elected, he would withdraw the US from the Trans-Pacific Partnership (TPP) on his first day in office. And with the TPP now looking moribund and even NAFTA in jeopardy, Roubini suggested that it leaves China with the opportunity to pursue free trade agreements “all the way to Mexico”.

Even as Beijing’s appetite for overseas investments grows, Chinese money – and Chinese ownership – isn’t greeted with uniform warmth. China has been blocked from significant investments in the US and the incoming American administration’s posture towards Beijing is unlikely to make things easier. Roubini noted that with a protectionist turn looking likely, China’s FDI relationship with the US will grow more complex. American lawmakers may be tempted to pursue reciprocity. While Chinese internet companies like Alibaba and Tencent have been able to set up shop in the US, acquiring companies and operating relatively freely, US internet companies like Facebook and Twitter are not even accessible in China.

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