Money pot

While attention is usually paid to the massive inflows of foreign investment in China, little mention is made of how China’s investments in Asia have spurred regional economic growth.

By the end of 2011, China’s cumulative non-financial overseas direct investment (ODI) totaled $322 billion, according to data from the Ministry of Commerce. Nearly 70 percent of that went into projects around the Asia-Pacific region.

Over the past decade or so since China began its investment push overseas, the Asia Pacific has been one of its focal points.

Dr Chunlai Chen of the Crawford School of Economics and Government at the Australian National University in Canberra believes China’s foreign investment in Asia has not only contributed to regional economic stability but is driving development as well.

“The general impact of any foreign direct investment (FDI) is capital formation and the creation of employment,” Chen tells China Daily Asia Weekly.

“In developing countries this tends to be in the labor-intensive sectors, such as manufacturing and resources. This has been the case in many Asian countries over the last decade or so.

“Not only do you create employment, you also create exports which in turn increase domestic growth. This has been the case in much of developing Asia.”

For instance, about 98 percent of the employees at information and communications technology solution provider Huawei’s India establishment are local. The Chinese telecom giant also sources components worth $500 million from local vendors.

Hong Kong-listed Geely Automobile Holding’s expansion of its operations in Indonesia will inject capital into the local market, create jobs and boost China and Indonesia’s production potential and exports.

In Chen’s view, China’s ODI is likely to accelerate over the next 20 years.

In resource-rich Australia, for example, 80 percent of the country’s economy is now tied to China.

As of  August 2011, investment by Chinese companies in Association of Southeast Asian Nations (ASEAN) countries totaled $22.3 billion while ASEAN investment in China was $90 billion, according to the Ministry of Commerce.

“We are building up a platform for more Chinese companies to better develop their businesses in ASEAN countries,” Yu Ping, vice-chairman of China’s Council for Promotion of International Trade, told the Chinese media last year.

“We provide information before they go and help them understand the local culture. We encourage more Chinese companies to invest in ASEAN countries as they are raising economies.”

Analysts say China’s strong economic ties have helped cushion Asia from much of the fallout of the slowing economies of Europe and the United States, and helped boost local currencies and regional domestic economies.

Professor Ying Zhu, director of the Center for Asian Business at the University of South Australia, says

China’s investments in Asia, and in particular ASEAN, has had a positive impact on the region’s economy. “Over the past four years we have seen a slowdown in investments from Europe and the US into the region due to their economic problems. China has simply filled the gap”.

Enwright De Sales, managing director of Deloitte’s India services for China, agrees.

“Given the backdrop of the European crisis and the fact that EU is the largest trading partner of both India and China, businesses in both countries are exploring new markets,” he tells China Daily Asia Weekly.

“Last year, the Industrial and Commercial Bank of China opened an office in Mumbai, the first by a Chinese bank in India, and Infrastructure Leasing and Financial Services Ltd (became the first Indian company) to acquire an equity interest in a Chinese State-owned enterprise in Chongqing.

“The Reserve Bank of India has also permitted Indian borrowers in the infrastructure sector to raise funds in yuan.”

However, an Indian Commerce and Industry ministry official, who declines to be named, says that certain issues still hinder the smooth flow of capital between China and India.

“In the present context, particularly (given) the current crisis in Europe and the US, China and India must come together in each other’s interests,” the official says. “India should make greater efforts to attract Chinese investment. It will be good for regional stability.”

With India’s growth projection lowered to 6.9 percent from the 9 percent estimated  earlier this year by the government and a string of financial scams rocking the country, investors’ confidence is said to have dropped.

India’s neighbor Pakistan, projected by the Asian Development Bank to grow at 3.7 percent in 2012, is also wooing investment from Chinese firms.

During a visit to China last year, Prime Minister Yousuf Raza Gilani said more investment by Chinese companies in his country’s energy, infrastructure and farming sectors could turn things around.

The Gwadar port in Baluchistan and the Karakoram Highway are among the big projects undertaken with Chinese capital.

Sri Lanka, Nepal and Bangladesh also count on Chinese investment for major infrastructure projects.

Recognizing China’s increasing influence – it is the largest overseas investor and lender for the island nation – Sri Lanka’s central bank has given approval for the yuan to be used in banking transactions.

Bangladesh depends on Chinese companies to ramp up its telecommunications network, aside from building roads and bridges.

“Chinese companies – both State-owned enterprises and private groups – are expressing an interest in infrastructure, (power, roads, bridges, tunnels), telecom, automotive components, electronic appliances, steel and other sectors,” says De Sales.

“Chinese contractors are able to construct concrete slab building foundations much quicker than their Indian counterparts,” Atul Dhawan, partner, Deloitte Haskins & Sells, observed in a paper in July 2011 – Doing Business With China, explaining why Chinese construction firms are much sought after.

In Cambodia, Chinese companies have been involved in building roads and bridges in the Stung Treng province.

In December 2011, the Cambodian government inaugurated a dam for a 103 MW hydropower project at Kamchay in Kampot province built by Sinohydro, one of China’s biggest construction companies, at a cost of $200 million.

China is also the biggest investor in Myanmar with investments of $14 billion — 35 percent of all foreign investment in the country.

A 771 km pipeline that will transport oil and natural gas from Kyaukphyu in Myanmar to Yunnan province in China is expected to be completed in 2013.

Chinese companies are active in Central Asia, particularly in the oil and gas rich countries of Kazakhstan, Kyrgyzstan and Tajikistan.

Chinese firms have already built two major oil and gas pipelines from Kazakhstan and Turkmenistan to China, laying the ground for large-scale exploration and development of oil and gas fields.

In the power sector, China’s Tebian Electric Apparatus is building power transmission lines and substations in Kyrgyzstan and Tajikistan.

“In an offsetting deal, this company has acquired the right to extract gold, silver, copper and tungsten in the Pamir Mountains of Tajikistan,” the World Investment Report of the United Nations Conference on Trade and Development says.

According to Professor Jean-Marc Blanchard of the Center for US-China Policy Studies at San Francisco State University, anxieties expressed in some quarters about China’s ODI are based on “an ignorance of the facts or context”.

“The potential contribution of China’s outward FDI is often overlooked,” Blanchard is quoted as saying. “Chinese natural resource investments may boost the supply of resources, thus decreasing prices and resource competition.

“Regarding Chinese investment in natural resources, it must be acknowledged that Chinese firms have poured substantial amounts of money into non-resource sectors like banking and finance, electronics, and manufacturing.”

Trade between China and its neighbors in East Asia has grown rapidly over the last decade and now accounts for more than 30 percent of China’s total foreign trade.

China is the largest export market for Australia, Japan, South Korea and the 10 ASEAN member states.

Chinese companies are building roads, dams, highways, railways and bridges in these countries, too, helping create more jobs.

According to US economists Daniel Rosen and Thilo Hanemann, by 2020 Chinese firms will have placed between $1 trillion and $2 trillion in direct investments around the world.