China's overseas investments surge

BEIJING, July 3 (UPI) -- China, sitting on the world's largest foreign exchange reserves of about $2 trillion earned from burgeoning trade surpluses, has been on a spree to invest its money overseas while attracting inward foreign direct investments.

As China's overseas direct investments skyrocket, some estimates say they could soon overtake China's FDIs.

"ODI is one way to relieve the growing pressure that China is under because of increasing foreign exchange reserves and to promote the internationalization of the yuan," one analyst told the China Daily.

In April, Standard Chartered Bank estimated that China's ODIs in 2009 could range from $150 billion to $180 billion as the country acquires foreign assets in every major economic sector in keeping with its explosive economic growth. The projected FDI for 2009 is $80 billion to $100 billion.

Chinese media reports say last year's ODIs totaled $52.1 billion and FDIs $92.4 billion.

By any measure, these amounts are staggering and explain why the world's third-largest economy in gross domestic product terms after the United States and Japan continues to grow even in these difficult times brought on by the global financial crisis.

In fact, the global slowdown, which has led to a decline in the prices of overseas resources, is only spurring more Chinese investments overseas.

Unlike in the past when it discouraged Chinese companies from making overseas ventures to preserve precious foreign exchange, the government is now doing the opposite.

A China Daily report Thursday focused on whether China's ODIs will soon overtake its FDIs and quoted officials and experts as saying it was unlikely at least this year partly because Chinalco, or the Aluminum Company of China, had failed in its $19.5 billion bid to boost its stake in Rio Tinto, the giant Anglo-Australian mining company.

Also, the report said that even though Chinese National Petroleum Corp. along with British Petroleum, had won a bid to develop Iraq's biggest oilfield, it wouldn't significantly increase China's overall ODI this year because deals concluded in the previous months were of "small volume."

In other high profile acquisitions, Sichuan Tengzhong Heavy Industrial Machinery took over U.S. auto giant General Motors' Hummer brand.

Beginning Aug. 1, the Chinese government plans to relax foreign exchange curbs to allow firms to invest abroad, with up to $30 billion expected to flow out.

Chinese experts say with many foreign firms hurt by recession eager to sell their assets, they expect a wave of Chinese ODI outflows.

On the other side, China is also taking measures to arrest the decline in FDI flows into the country. The plan is to relax restrictions on foreign investment, the commerce ministry has said.

China's foreign direct investments in May totaled $6.38 billion, down 17.8 percent from the same month of last year. The May figure was the eighth consecutive monthly decline but wasn't as steep as April's 22.5 percent on a yearly basis. FDIs in the first five months totaled $34.05 billion, down 20.4 percent from the same period of last year.

The government also wants to invite foreign-funded companies to be listed in the country. The plan, which is also an effort to build Shanghai into a major international financial hub, calls for high-quality foreign firms to go public in China.

In fact, some domestically incorporated foreign banks have already announced plans to issue yuan-denominated bonds.