Chinese FDI in 2013

On September 9th, China’s Ministry of Commerce (MOFCOM), in conjunction with several related agencies, released the 2013 Annual Statistical Bulletin of China’s Foreign Direct Investment. Findings from 2013 show rapid growth in Latin America’s share of overseas investment. MOFCOM’s report also notes shifts in the composition of China’s FDI as firms adapt to an increasingly complex international environment and respond to domestic reforms.

LAC fastest growing region for Chinese FDI in 2013

China’s outward investment rose 23 percent to a record high of just over 107 billion last year, bringing the total stock of Chinese FDI to approximately 660 billion dollars. While Latin America and the Caribbean accounted for roughly 12 percent of Chinese FDI in 2012, investment to the region grew 133 percent in 2013 – making LAC the fastest growing destination for new Chinese investments. FDI growth in Latin America was more than double that of the second fastest-growing region, Oceania. Globally, Chinese capital flows to emerging markets accelerated in 2013, while China’s FDI flows to North American and European countries have stalled or decreased when compared with 2012 data.

Chinese capital bound for tax havens and natural resource investments

The British Virgin Islands and Cayman Islands, both well-known tax havens, have historically accounted for the vast majority of Chinese capital inflows to Latin America and the Caribbean. Much of the investment in both countries arrives as a product of  “round-tripping,” the practice of sending money out of China and then bringing it back as foreign investment so as to gain the benefits of special concessions and lower taxes. The amount of Chinese FDI bound for greenfield investments or acquisitions in Latin America, therefore, is much lower than official statistics might suggest.

According the data, more than 80 percent of China’s global FDI stocks and flows remain concentrated in a handful of sectors – business services, finance, mining, retail, and manufacturing. One report calculates that energy, mining and agriculture together account for over 60 percent of Chinese greenfield investments and more than 90 percent of Chinese M&A in Latin America between 2008 and 2012 (excluding FDI in known tax havens). Approximately US $53 billion — just under 50 percent of FDI flows in 2013 – went toward mergers and acquisitions. MOFCOM’s official statement highlights China National Offshore Oil Corporation’s (CNOOC) acquisition of Canadian company Nickerson for US $14.8 billion.

MOFCOM’s statistics suggest diversification of Chinese investors. While China’s state-owned enterprises still control 55 percent of total overseas assets, the share controlled by private and quasi-private firms increased 5 percent year on year. Deals in 2013 spanned 19 different industries, though the bulk of capital remained concentrated in large-scale mining, manufacturing, and real estate deals.

The report indicates that Chinese firms are also hiring more foreign workers. Companies employed an additional 13 thousand foreign nationals in developed countries last year, increasing total employment of foreign workers to 967 thousand in 2013. Some 85 percent of these workers are employed in emerging markets.

“Going-out” 2.0

The recently released guidelines for foreign investment allude to the many challenges encountered by overseas Chinese investors, including an increasingly complex international environment, international competition, insufficient risk awareness, and limited concern for social responsibility.

MOFCOM’s guidelines, to be implemented in October 2014, set out to address these challenges. To increase Chinese firm competitiveness, oversight by the central government will be further reduced through decentralization efforts and relaxation of investment regulations. Beijing will also publish new statistics and information resources for firms, such as the government’s Foreign Investment and Cooperation Country Guides, to increase risk awareness and improve social responsibility. The publication of new environmental guidelines for firms operating overseas in 2013 by MOFCOM and China’s Ministry of Environmental Protection could be followed by other legal mandates for social and environmental performance.