Chinese Firms, Sovereign Wealth Fund Taking Advantage Of More Affordable Investments Overseas In Wake Of Economic Slowdown
Chinese overseas investment has been one of the major news developments of the last year, particularly in the wake of this summer’s Rio Tinto-Chinalco semi-scandal. Although Chinese outbound investment is nothing new, and has increased dramatically following the country’s admittance to the WTO in 2001, falling asset values abroad — along with a gradually strengthening yuan — have given overseas investment extra urgency for the government (and its state-owned enterprises) as well as private Chinese companies in the last few years.
If a recent article by China’s Peoples’ Daily is, indeed, true, it looks like outbound investments, at nearly US$150 billion, nearly triple last year’s amount of US$52 billion, will continue the dramatic upward trend we’ve seen them follow over the last 5 or 6 years.
As Erik Bethel (an excellent source on investment in China and Latin America) writes in Seeking Alpha, the People’s Daily article highlights some quotes by Fan Chunyong, the standing director of China Industrial Overseas Development and Planning Association, in which he says that the sheer volume of year’s outbound investments by China — which are, at nearly US $150 billion, for the first time higher than inbound investments — indicate that China is already making a shift from a “manufacturer” to a “capital exporter.”
“30 years of economic development has enabled China to accumulate a large amount of capital. Chinese capital will naturally flow overseas if that market has lower cost and higher profit than domestic investment.”
Stories like this illustrate what we have written several times before, and what many economists and analysts have been watching for some time. As the Chinese government relies less on stockpiling dollar-denominated foreign exchange reserves in lieu of outbound foreign direct investment, and as the Chinese yuan continues down the path of internationalization as the dollar loses more ground as the de facto global currency (wherever that leads is anyone’s guess at this point, really), holders of Chinese assets could benefit down the road.
We’ve already recommended portable Chinese assets like the arts, but in some ways any portable asset is always a good diversifier. As outbound investment by Chinese firms and businesspeople continues — not only for buying businesses but also buying Chinese art and antiquities at auction (as we’ve seen all summer) — it looks like competition will become more fierce for many assets down the line between Chinese and non-Chinese investors.