China Grows As A Global Investor

China has totted up for the first time the numbers compiled by various ministries for the country's outward direct investment. The total came to $21 billion last year, sufficient to put it among the leading 15 nations for foreign direct investment.

Investment by manufacturers and other non-financial firms rose 43.8% to $17.6 billion in 2006, while that by banks and financial firms' rose 16.7% to $3.5 billion, according to the official figures reported in the People's Daily. Forty percent of the total was channeled through mergers and acquisitions.

It is no surprise to learn that Chinese companies are spreading abroad in search of the technology, expertise, markets and raw materials they need to fulfill Beijing's ambition to create world-class national champions in 20 industries. The current five year plan envisions foreign direct investment tripling by 2010, though that would still only be $60 billion.

The Commerce Ministry puts some hard numbers on the progress so far: By the end of 2006, more than 5,000 Chinese entities had established almost 10,000 companies abroad in 172 countries and regions, it says. It also claims this investment has created 200,000 jobs for foreigners.

One often overlooked additional reason for the gathering pace is the ending of a requirement that each foreign investment be officially preapproved. It is also easier for companies to get the foreign exchange they need to invest overseas and to remit it once they have it. Their bankers in China, too, are being encouraged to set up overseas branches.

Before cries of 'The Chinese are coming' are raised, a reality check:

First. almost half of these overseas Chinese operations have been set up in Hong Kong, the U.S., Russia, Japan, the United Arab Emirates, Vietnam, Australia and Germany. Hong Kong, a special administrative region of China, note, heads the list.

Second, for every dollar that flowed out of China in foreign direct investment last year, three are flowing in the opposite direction. Total foreign investment in China rose 12.8% to $42 billion in the first eight months of this year.

Third, there are still only a handful of Chinese companies capable of breaking into the consumer or business markets in North America, Europe and Japan, even though 43 Chinese companies make our list of the world's 2,000 largest public companies.