Bal­anced flows draw step closer

Na­tion’s ODI will soon move ahead of FDI, min­istry says

China Daily (Canada) - - FRONT PAGE - By LI JI­ABAO in Bei­jing li­ji­abao@chi­nadaily.com.cn

China is mov­ing nearer to a long-pur­sued goal of achiev­ing bal­anced cap­i­tal flows, with a com­merce of­fi­cial say­ing its out­bound di­rect in­vest­ment will soon sur­pass for­eign di­rect in­vest­ment to the coun­try.

Mean­while, the gov­ern­ment is look­ing at the tim­ing for scrap­ping lim­its on for­eign in­vest­ment and open­ing up more sec­tors fol­low­ing com­pre­hen­sive re­form plans out­lined at a high-level eco­nomic meet­ing late last year.

“Maybe this year, or in two years, China’s out­bound di­rect in­vest­ment will ex­ceed its FDI,” Com­merce Min­istry spokesman Shen Danyang said at a news brief­ing on Thurs­day.

Last year, China’s ODI trailed FDI in­flows by more than $20 bil­lion, the min­istry said.

This cap­i­tal flows sce­nario comes amid a warn­ing from the World Bank that an un­wind­ing of cen­tral bank sup­port for ad­vanced world economies could cause emerg­ing mar­ket cap­i­tal flows to con­tract by as much as 80 per cent, in­flict­ing sig­nif­i­cant eco­nomic dam­age and throw­ing some coun­tries into crises. Cap­i­tal flows into emerg­ing mar­kets are in­flu­enced more by global than do­mes­tic forces, leav­ing them vul­ner­a­ble to dis­or­derly changes in pol­icy by the US Fed­eral Re­serve, con­cludes a study by World Bank econ­o­mists.

ODI and FDI don’t in­clude in­vest­ment in the fi­nan­cial sec­tors. That omis­sion may tend to dis­guise the im­pact on the global mar­ket­place of last year’s “ta­per tur­moil”. Fears that the United States Fed­eral Re­serve would re­duce the cen­tral bank’s as­set pur­chase pro­gram caused in­vestors to yank $64 bil­lion from de­vel­op­ing-coun­try mu­tual funds be­tween June and Au­gust. Coun­tries such as Brazil, In­dia, In­done­sia, Malaysia, Tur­key and South Africa saw sharp sell-offs in eq­uity, bond and cur­rency mar­kets.

FDI rose by 5.25 per­cent year-on-year to $117.59 bil­lion last year, while ODI in­creased by 16.8 per­cent to $90.17 bil­lion, both growth rates be­ing bet­ter than the global av­er­age, Shen said.

China was the world’s sec­ond-largest re­cip­i­ent of global FDI and third-largest in­vestor in 2012.

Zhang Jian­ping, a re­searcher at the In­sti­tute for In­ter­na­tional Eco­nomic Re­search at the Na­tional De­vel­op­ment and Re­form Com­mis­sion, said China’s cap­i­tal ac­count will be­come bal­anced as its ODI matches FDI.

This will also help to re­duce in­fla­tion­ary pres­sure from the huge trade sur­plus as well as dif­fi­cul­ties in macroe­co­nomic con­trol, Zhang said.

Re­lo­cat­ing do­mes­tic man­u­fac­tur­ing plants to over­seas mar­kets will also help to avoid trade in­ves­ti­ga­tions launched against Chi­nese com­pa­nies, Zhang said.

Shen, the min­istry spokesman, said that in 2013 China may have been tar­geted by the most an­tidump­ing in­ves­ti­ga­tions in the world for 18 con­sec­u­tive years. It may have also faced the most anti-sub­sidy in­ves­ti­ga­tions for eight con­sec­u­tive years last year.

Wang Jun, an ex­pert at the China Center for In­ter­na­tional Eco­nomic Ex­changes, a gov­ern­ment think tank, said that boost­ing over­seas in­vest­ment, in­clud­ing that by in­di­vid­ual in­vestors, is an im­por­tant strat­egy for China.

“Over­seas in­vest­ment will ex­tend the use of the yuan and make it a set­tle­ment cur­rency in re­gional and even in­ter­na­tional trade and in­vest­ment, which will en­hance China’s na­tional strength,” Wang said.

Shen said the coun­try’s ODI will con­tinue to boom in 2014 as the gov­ern­ment cuts ap­proval pro­ce­dures and gives more sup­port.

In­ward in­vest­ment

FDI will be sta­ble this year as the global econ­omy is re­cov­er­ing and the lead­er­ship’s re­form mea­sures have started to boost do­mes­tic de­mand and im­prove the in­vest­ment en­vi­ron­ment, Shen said.

“The min­istry will step up re­forms of the FDI man­age­ment sys­tem this year. We will study spe­cific timeta­bles for scrap­ping con­trols or re­lax­ing re­stric­tions in some sec­tors.”

The ser­vice sec­tor will be a pri­or­ity, he said.

“We will ... fig­ure out the key prob­lems in open­ing up 10 ser­vice sec­tors and gen­eral man­u­fac­tur­ing in­dus­try, in­clud­ing eas­ing stake-hold­ing lim­its and reg­is­tered cap­i­tal thresh­olds and ex­pand­ing the busi­ness scope for for­eign in­vest­ment,” Shen said.

China has pledged to widen in­vest­ment ac­cess and open up some ser­vice ar­eas in­clud­ing fi­nance, ed­u­ca­tion and cul­ture while re­mov­ing re­stric­tions on for­eign in­vest­ment in ser­vice ar­eas in­clud­ing pen­sions, ar­chi­tec­tural de­sign and e-com­merce.

FDI into ser­vice sec­tors rose by 14.15 per­cent to $61.45 bil­lion last year, ac­count­ing for 52.3 per­cent of the to­tal, the first time ser­vice sec­tors have at­tracted more than half of the in­vest­ment.

Zhang, the re­searcher from the Na­tional De­vel­op­ment and Re­form Com­mis­sion, said, “It shows the coun­try’s FDI struc­ture is im­prov­ing along with the gov­ern­ment’s re­struc­tur­ing of the eco­nomic growth pat­tern to en­hance the con­tri­bu­tion of ser­vice sec­tors.”

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