Few would dispute China’s importance to the world economy today; from small villages to large cities, its presence is now felt almost everywhere. The Economist recently went so far as to call China “the indispensable economy,” reporting that more and more multinational companies are realizing an increased share of their revenues from inside Chinese borders. China has also become the largest export destination for many countries in the northern and southern hemispheres. Yet with this focus on China’s large market size, economic growth, and ability to attract inbound trade and investment, less attention is being paid to the role of its private sector and outbound foreign direct investment (FDI).
The Chinese private sector is increasingly also playing an important role in the world today. In nearly any country you travel to these days you can feel the presence of Chinese business. New data backs up this story. Though China still trails the United States (a whooping 5,450 new outbound FDI projects in 2010) and other traditional outbound FDI leaders (UK, Germany and Japan) by a long distance in absolute numbers (Figure 1), according to the Financial Times fDi Markets database, it reported the fastest year-on-year growth for the last five years in outbound FDI projects (23% compound annual growth rate (CAGR)) of any major industrialized economy.
Most of Chinese outbound FDI projects have been in the IT and communications sectors, led by emerging multinationals Huawei Technologies (whose products and solutions have been deployed in more than 100 countries), ZTE (which operates in more than 140 countries) and Lenovo. These multinationals and others have helped move China from the 21st largest source of FDI projects and capital invested (CAPEX) in 2006 to the 13th largest source of FDI projects and CAPEX in 2010.
Figure 1: Leading economies outbound FDI project announcements, 2006 -2010
Source: Financial Times, fDi Markets Database, 2010
Over the last five years Chinese multinationals are also increasingly looking beyond the Asia-Pacific market for new investment opportunities. In 2006, 40% of all FDI projects coming from China went to other Asia-Pacific economies (mainly Hong Kong, Japan, Taiwan and Vietnam). Last year that number had dropped to 30 percent (Figure 2 - click for a larger version of the image), with the largest increases found in North American and European markets. In fact, today the top two destination markets for Chinese companies are the United States and Germany, attracting 8% of all Chinese investment projects each.
Figure 2: Chinese firms looking beyond Asia for investment opportunities
While Chinese multinationals still may be years, or even decades, away from reaching the volume of deals that multinationals in the United States and European Union currently make, there is little question concerning China’s strength on the global FDI scene. Chinese companies are a force to be taken seriously as they continue to grow and expand their market presence beyond the Asia-Pacific region to other areas of the world.