The double-edged sword of China’s global investment success

Key Points 

• The China Global Investment Tracker (CGIT) is the only fully public accounting of China’s investment around the world. It shows 2015 investment growing by 16 percent to $111 billion.
• The CGIT also documents China’s global construction activity. The combined value of investment and construction since 2005 exceeds $1.2 trillion.
• The challenge for the United States is to separate the many legitimate Chinese activities that benefit Americans from the firms and individuals that have broken US law.
• The challenge for China is that investment outflow may no longer signal growing prosperity, but a belief by Chinese companies that opportunities are now better overseas.

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Introduction

Stories about Chinese investment around the world are enjoyable, but given its size and importance, numbers are indispensable. The China Global Investment Tracker (CGIT), produced by the American Enterprise Institute and Heritage Foundation, is the only fully public record of China’s global investment and construction activity.[1] Unlike government data, it details individual transactions, rather than just providing totals.

The CGIT documents outward investment of more than $110 billion last year, a 16-percent rise over 2014. With China’s once-overwhelming splurge on energy and metals resources down to a relative trickle, sectors such as transportation performed very strongly to compensate. The US and Australia were again the largest national recipients.

Investments are often conflated by host countries and media with construction projects. Chinese state-owned enterprises are world leaders in global construction and the CGIT shows that more than 40 countries awarded them a contract worth at least $100 million in 2015. From 2005 through 2015, the total value of China’s investment and construction transactions around the world exceeded $1.2 trillion.

This magnitude of investment and construction has a series of implications, but one seems to be underemphasized, at least in Beijing. There are potentially severe drawbacks to a large amount of money continuously flowing out of a country that reported median disposable income of just $3,000 heading into 2015.[2] The trend for Chinese outward investment is positive and should certainly be seen as stemming in part from previous economic success. The flow to other countries also stems in part from current economic failure and may contribute to future failure.

CGIT v. MOFCOM

The CGIT starts in 2005 primarily because Legend’s path-breaking acquisition of IBM’s personal computer unit was recorded that year, helping China’s annual outward investment more than double. The CGIT now includes more than 850 investments and nearly 900 construction projects, each worth $100 million or more. (Construction projects are services performed in the host country. Trade, bonds, and loans are not tracked.) It also lists 170 troubled transactions, in which projects or acquisitions were impaired or failed after negotiations seemed to be successfully concluded.

The Ministry of Commerce (MOFCOM) provides the official data on outward investment (see table 1). It also reported a 16 percent increase in outward investment through November, based on the unrevised 2014 total.

Starting in 2012, just as the domestic economy weakened, Communist Party propaganda began to tout outward investment. In particular, shifting capacity overseas via the Belt and Road Initiative has become politically prized, and it is difficult to imagine a reversal being acknowledged. As with other Chinese statistics, politicization is generally harmful to accuracy.[3] For instance, official figures seem to assume a fixed amount of reinvestment every month. For 2015, this was $1.4 billion monthly, adding almost $17 billion to the annual pile. True reinvestment is obviously not that steady.

Like MOFCOM, the CGIT uses corporate reporting. For tractability, the CGIT is limited to transactions of $100 million or more, and the full value of the transaction is credited when the investment or construction activity has clearly started. The CGIT lists all constituent transactions, where MOFCOM does not disclose these. The CGIT is reviewed every six months, and updates frequently include changes in earlier years as better information becomes available. MOFCOM began to revise annual totals in 2011, but the revisions are often ignored in calculating growth and country shares.

MOFCOM uses odd sectors classification. For example, “energy” is not a designated sector, but “business and leasing services” is. The CGIT uses conventional categories, changing the list to match new areas of emphasis, such as tourism and, looking forward, perhaps entertainment. Most important, due to long-standing Chinese policy, MOFCOM must treat Hong Kong as an external customs port. Therefore, on the official tally, more than half of spending in 2014 was said to culminate in Hong Kong. In fact, this money merely flows through Hong Kong, and MOFCOM’s country totals can be too low by billions. The CGIT provides the final destinations.

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Notes 

1. The entire set of transactions can be found at American Enterprise Institute and Heritage Foundation, China Global Investment Tracker, January 2016 update, http://ift.tt/1ZujKNn.
2. National Bureau of Statistics of China, “China’s Economy Realized a New Normal of Stable Growth in 2014,” January 20, 2015, http://ift.tt/1J1ujMe.
3. Yang Zhiwang, “China’s Belt and Road Initiative to Give New Impetus to World Economic Growth,” Xinhua, November 16, 2015, http://ift.tt/1PrPHeL; and TGS and AEF, “China’s GDP Growth for 2015 May Be 4.5 Percent,” Chinascope, November 30, 2015, http://ift.tt/1PrPJTN.

 

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