China’s Overseas Direct Investment Continues Gaining Momentum

China’s Overseas Direct Investment Continues Gaining Momentum

China’s Overseas Direct Investment Continues Gaining Momentum

China’s outbound direct investment (ODI) is surging despite weak global growth as Chinese companies continue to internationalize their business.

Non-financial ODI increased 53.3% Y-Y to reach $145.96 in the January-October frame, surpassing the total for Y 2015 of about $121.4-B, according to the Ministry of Commerce on Thursday.

In October, ODI grew 48.4% Y-Y to reach $11.74-B.

China’s overseas investment reached 162 countries and regions, most of it going to Hong Kong, ASEAN, the EU, Australia, the United States, Russia and Japan in the first ten months, with the United States posting the strongest year-on-year growth at 173.9%.

ODI continued to exceed foreign direct investment (FDI) into the Chinese mainland, which rose 4.2% Y-Y to reach about $98-B in the same frame. China’s ODI exceeded FDI for the 1st time ever in Y 2015, becoming a net capital exporter.

In addition to growing investment volume, the pattern of China’s ODI is changing rapidly as the consumer and services sectors gather momentum.

China’s overseas investment started with raw materials, moved on to infrastructure and manufacturing, and is now starting to focus on big-name consumer brands and high-tech companies, according to a research note from HSBC.

Official data showed that in the 1st 10 months, most of the investment flowed to commercial services, manufacturing and retail, with equipment manufacturing almost quadrupling last year’s investment.

Once dominated by large state-owned enterprises in search of iron ore and copper, China’s ODI now includes private sector giants buying US film studios and European fashion houses, along with state-backed companies snapping up new tech firms, the HSBC report pointed out.

The HNA Group is a good example of the trends. The private conglomerate from south China’s Hainan Province extended its push into the leisure sector with a high-profile deal to buy a 25% stake in Hilton International (NYSE:HLT) in October.

In the past 2 years, the company has spent about $23.8-B in cross-border acquisitions, including hotels and commercial real estate, in order to extend its value chain and strengthen its aviation core business, according to the report.

Official data showed that Chinese companies continued to work closely with countries along the Belt and Road Initiative. They signed construction contracts worth over $84-B during the frame, + 30.7% Y-Y.

However, HSBC noted that investment in the Belt and Road countries has been moderating in recent months due to global uncertainties and a high comparison base in Y 2015.

With the global economy showing signs of recovery, more projects are reaching the implementation stage, cross-border connections are becoming more sophisticated, and financing support is gradually strengthening, HSBC said, adding it expects China’s investment in the Belt and Road region to grow at a stable pace in the next couple of years.

Have a terrific weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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