China's FDI: Foreign Direct Investment – In Praise of China

China’s FDI: Foreign Direct Investment

Why has Chinese outward foreign direct investment (COFDI) exponentially increased since 2015? Because

  1. China’s GDP is increasing exponentially:

The CIA World Factbook gives 2015 GDP figures as

  • United States: $17,970,000,000
  • European Union: $19,180,000,000.
  • China: $19,510,000,000,000,000.

2. GDP is a gross figure disguising the fact that, every year since 1978, China has retained more value of their gross product. It rose dramatically last year when China’s import bill dropped 40 percent as commodity prices collapsed, making 2015 hugely profitable for China. Inc. Now there are trillions of dollars looking for opportunities anywhere, including abroad. At home, China is flooded with new capital – a huge US$3T a year sinks into China’s deepening pool of capital. To get a sense of how awesome this cash aquifer is, read Adjusted savings: net national savings (current US$). The reason we barbarians are seeing Chinese cash is because our investment environment is less competitive (and more timid) than theirs at home. Today, in every first and second-tier city in China there are guys ready – even eager – to throw down a hundred million bucks for something promising. It’s boom time in China and we’re being under-informed about it.

3. China has nearly 600% of GDP in in corporate, government, and private savings. The savings far outweigh the debt. Remember, not all governments are irresponsible with debt: China, Russia and Norway are on the side of the angels. China only participates in the international debt market to gain a seat at the top table, whence they are implementing Bretton Woods II, a drama entitled Keynes’ Revenge: Bancor’s Ghost. China has no need of foreign debt. Theirs is minimal.

4. They’re moving relentlessly up the value chain in accordance with their five year plans. Every year more high-value Chinese products enter my life and, probably, yours. Huge Chinese buses, for example, one of those big-ticket items every nation dreams of exporting, are muscling aside Volvo, MAN, and Mercedes where I live in Thailand. And I just spotted my first piece of Chinese hospital gear (a snazzy desktop vital signs multi-tester) in an international hospital. Next year the top-of-the-line Cadillac we see on American roads will have been made in China. Talk about coals to Newcastle!

5. FDI is good foreign policy. As one Chinese diplomat observed, “After sending ambassadors, presidents, dance troupes, art shows all around the world we discovered that what countries really like is if you buy stuff from them”. Deep-pocketed Chinese are becoming better acquirers and better ambassadors – as Geely’s acquisition and resuscitation of Volvo demonstrated.

6. It’s an opportunity to launder money. Anyone who’s been involved with foreign subsidiaries will tell you that laundering and tax reduction through transfer pricing is endemic. Laundering and tax-reduction are probably responsible for 50 percent of foreign investments. Outside Beijing and Shanghai, most transactions in China are in cash. Think about that for a moment. Offshore investments are a great way to send those accumulated billions to the cleaner.

What do YOU think?

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