(MENAFN- Asia Times) As economists obsess over plunging foreign direct investment into China, they risk missing a far more important trend: the giant waves of capital zooming in the other direction.
In 2023 alone, Chinese outward direct investment in the Asia-Pacific region surged 37% to nearly US$20 billion. That outflow speaks to how Chinese companies seeking growth abroad are altering financial dynamics from Asia to the West to Latin America.
And how China Inc's investment ambitions are only just beginning to remake the global pecking order , despite Washington's attempts to curb its influence.
“China's ODI has risen substantially since the turn of the millennium,” says Frederic Neumann, chief Asia economist at HSBC.“Only starting to venture out into the international investment landscape in the mid-2000s, China was, in a sense, 'late to the game.' However, after rapid increases in the first half of the 2010s, China's stock of ODI now surpasses that of Japan, Germany and the UK.”
And there's still room for exponential growth. As of the end of 2023, Neumann notes, the overall stock of Chinese outward investment was just one-third that of the US, and still small relative to the size of China's economy. At 15.7% of gross domestic product (GDP), Neumann says,“it's well below” that of the major developed economies and the global average of 34%.
The reason, Neumann explains, is that Chinese firms have strong incentives to“go out” to explore global markets, including the so-called“Global South” developing markets.
As China develops, its funding of ODI will be an increasingly vital channel to gain access to resources, markets and trade routes.
The dynamic marks an about-face from earlier policies de-emphasizing ODI in 2016 and 2017 and during the pandemic period. Yet an increasing amount of investment now“would align with broader Chinese economic and political development priorities,” Neumann says.
“We think that Chinese ODI flows are set to accelerate,” he adds.“In our baseline scenario, which envisages ODI rising in line with its recent trend, annual flows could rise by over 50%, with at least $1.4 trillion to be invested abroad between now and 2028.”
There's an ever more dramatic upside scenario that HSBC is analyzing: China's ODI rising in sync with per capita gross domestic product. That would mean a near-tripling of the recent pace of ODI to well over $400 billion per year.
China's outgoing cash contrasts sharply with the 12% drop in overall FDI into emerging Asia in 2023. Roughly half of the investment China is making in the region is going to Southeast Asia, up 27% year on year.
Especially Indonesia . Southeast Asia's biggest economy, which grew more than 5% in 2023, took in about US$7.3 billion of Chinese ODI last year.
“Indonesia has a track record of navigating shocks and maintaining economic stability,”
says
economist Satu Kahkonen, World Bank country director for Indonesia.
Incoming president Prabowo Subianto projects 8% growth for Indonesia over the next five years. The challenge, Kahkonen says,“is to build on strong economic fundamentals to deliver faster, greener and more inclusive economic growth.”
MENAFN11032024000159011032ID1107960443
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.