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On the Issue of Exporting Chinese Capital

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AUSTIN, TEXAS – April 1, 2019

With the advent of Trump, a red light lit up on the path of Chinese investment in the US

No matter what they say in China about building "socialism with Chinese characteristics," in fact, the country is developing along the rails of capitalism. The largest companies and banks in China are state or semi-state and have all the signs of monopolies. This is typical monopoly capitalism, which becomes imperialism when the export of capital begins to prevail over the export of goods.

China’s share in world exports of goods changed as follows (%):

1983 - 1.0;

1993 - 2.5;

2003 - 5.9;

2017 - 13.2.

The US position in these years gradually weakened (%):

1983 - 11.2;

1993 - 12.6;

2003 - 9.5;

2017 - 9.0.

Already in 2009, China came in first place in the world in terms of commodity exports, beating the United States. In 2012, China ranked first in terms of turnover of all foreign trade.

In 2018, China's trade, according to preliminary estimates, reached a record value of $4.6 trillion (against $4.1 trillion in 2017), while exports were equal to $2.46 trillion (against $2.26 trillion in 2017), and imports - $2.14 trillion (against $1.84 trillion in 2017).

The possibility of further expansion of commodity exports by China is close to the limit, especially given the pressure of Washington, seeking more balanced bilateral trade (the US has a huge deficit in this trade), and also taking into account the increasing protectionism in the world. It cannot be excluded that the records in the field of foreign trade for China ended last year.

Long before the start of the trade war with Washington, Beijing began to prepare for a possible halt to its trade expansion. There are two approaches to solving this problem. One approach is the replacement of foreign markets with the rapid development of the internal market. The second approach is the replacement (or addition) of the export of goods by the export of capital. The Chinese authorities use both approaches.

The export of goods involves the capture of markets, the export of capital involves the capture of the economies of other countries. The first decisions to stimulate the export of capital were made in China in the early 2000s. The dynamics of the export of capital from China in the form of direct investment were as follows (billion dollars):

2002 - 2.7;

2005 - 12.3;

2010 - 68.8;

2012 - 87.8;

2013 - 107.8;

2014 - 123.1;

2015 –145.7;

2016 - 196.2;

2017 - 124.6;

2018 - 129.8 (preliminary estimate).

And here is the picture of China's accumulated direct investment abroad (at the end of the year, billion dollars):

2000 - 27.8;

2002 - 29.9;

2005 - 57.2;

2010 - 317.2;

2017 - 1,482.0

As you can see, in the period 2002-2016 there was a continuous and very rapid increase in the export of Chinese capital from China. In 14 years, it increased 72.7 times; during the same time, commodity exports increased from $325.6 billion to $2.097 billion, i.e., 6.44 times.

One of the most powerful means of stimulating the export of capital from China has been the launch, since the end of 2013, of the One Belt One Road Project (OBOR) or the Silk Road Economic Belt and the 21st-century Maritime Silk Road. The project provides for the creation of a global transport and logistics infrastructure in dozens of countries around the world. As it is implemented, it will contribute to the promotion of Chinese goods and Chinese interests throughout the world, including the promotion of Chinese capital, due to which the construction of infrastructure facilities and enterprises serving them will be built.

Note that in 2017 there was a drop in the absolute volumes of export of Chinese capital, and in 2018, according to preliminary estimates, the increase was very modest. There was some kind of glitch. In part, it can be explained by the fact that worldwide there has been a slowdown, even a reduction in exports and imports of capital in the form of direct investments. In the first half of 2018, UNCTAD recorded a reduction in direct cross-border investment by 41% compared with the first half of 2017. But in general, according to the results of 2018, according to preliminary estimates, the decline in investment was about 20%.

The investment protectionism of the West has become a more serious factor in curbing the Chinese expansion of investments. It is especially manifested by the US. For several decades America has been an unattainable leader in the export and import of capital. the volume of China's accumulated direct investment abroad was estimated (rounded) at $1.5 trillion. The volume of accumulated direct investments of non-residents in the Chinese economy was about the same.

At the same time, the US’s accumulated direct investment abroad was $7.8 trillion; accumulated direct investments of foreign origin in the American economy rounds to $7.8 trillion. It is noteworthy that the assets from the export of capital abroad and the assets from the import of capital in their own economies are about the same for both countries, and the export and import of capital are balanced. At the end of 2017, China was about five times behind the US in both international investment positions. Nevertheless, Washington is nervous, because the gap is narrowing. Attempts are being made to contain the influx of Chinese capital into the US economy. The US government rejects applications from Chinese investors to buy shares in US companies or even entire companies, citing national security concerns. Or they recall the anti-monopoly legislation, which allegedly could be violated in the case of transactions involving Chinese investors.

Recently, the consulting company Baker & McKenzie, together with the research company Rhodium Group, completed a study that showed that China’s direct foreign investments in Europe and North America last year amounted to just $30 billion. In 2016, they were equal to $94 billion, in 2017 - $111 billion. The fall over the last year compared to the year before was $81 billion (by 73%). It turns out that if in 2017, of the total Chinese export of capital in the form of direct investment to Europe and North America accounted for 89%, then in 2018 this share fell to 23%. The fall in the US was especially sharp. Here are the data on the volume of Chinese direct investments in the US economy (billion dollars):

2016 - 45.6;

2017 - 29.0;

2018 - 5.0.

The drop in 2016-18 was more than 9 times! The US share in the export of capital from China fell from 36.6% in 2017 to less than 4%. And the US is showing much tougher protection against Chinese investment than Chinese goods.

Europe is also trying to restrain Chinese investment, but there is no such pronounced protectionism here. China’s direct investments in Europe were equal (billion dollars):

2016 - 46;

2017 - 80.0;

2018 - 22.5.

The bulk of the investment in 2017 came from the acquisition of Syngenta (a Swiss company, one of the leaders in the production of plant protection products and seed production) by ChemChina for $43 billion. Excluding this transaction, Chinese investment in Europe in 2018 decreased by only 40%. At the same time, Chinese investments last year grew in the economies of France, Germany, Spain, Sweden and a number of other European countries. In 2017-18 Chinese investments also increased in the Canadian economy - from $1.5 billion to $2.7 billion.

Beijing seeks to compensate its serious losses in the export of capital in the direction of the US and some losses in the direction of Europe at the expense of the countries involved in the OBOR project.

Attention is drawn to the assessments of the American Enterprise Institute, outlined in the report “OBOR Initiative gives a boost to Chinese outbound investments.”

The figures in the report do not fully coincide with those given by UNCTAD. Apparently, the authors include in the heading "investments" not only direct, but also portfolio and other (loans and borrowings) investments. The authors of the report divide the export of capital into two parts - the one that was sent to the countries involved in the implementation of OBOR, and the rest of the countries (see table.)

                                                                                     2014      2015    2016       2017      2018

Total                                                                              177         205        271       280        179

To countries participating in the OBOR project          105         125       132         120       106

To other countries                                                         72           80         139         160         73

Export of capital from China to countries participating in the implementation of the OBOR project and to other countries (billion dollars)

In 2014-2018, capital exports to the countries participating in the OBOR project amounted to $588 billion, to other countries – $524 billion. That is, the OBOR project had a powerful stimulating effect on the export of capital from China. In general, the project "One Belt One Road" provided a doubling of Chinese capital exports.

The American Enterprise Institute has compiled a list of the top ten countries in terms of received Chinese investments participating in the OBOR project (investments for the period 2014-2018, billion dollars):

Pakistan - 40;

Nigeria - 31;

Malaysia - 30;

Singapore - 28;

Indonesia - 26;

Russian Federation - 24;

Bangladesh - 23;

UAE - 21;

Laos - 18;

Egypt - 16.

And here is the list of leading recipients of Chinese investments from those countries that are not participating in the OBOR project (investments for the period 2014-2018, billion dollars):

United States - 123;

Great Britain - 62;

Switzerland - 53;

Australia — 46;

Germany - 36;

Brazil - 34;

Italy - 21;

Argentina - 17;

Finland - 16;

France - 16.

The fact that the US is in the first place in the top 10 list should be attributed to the massive influx of Chinese capital in 2014-2016. With the advent of Donald Trump, everything changed. On the way, Chinese investment in America lit up a red light. Leadership in this area can go to the UK, which is negotiating with China to increase the scale of mutual investment cooperation. Some of the “other” countries can also move into the category of participating in the OBOR project, first of all Italy. Italian Vice Prime Minister Luigi Di Mayo and Chairman of the PRC State Development and Reform Committee He Lifeng signed a memorandum of understanding within the framework of the Chinese initiative “One Belt One Road” during the official visit of the PRC Chairman Xi Jinping to Italy on March 23. Beijing does not hide the fact that in the near future it plans to extend the OBOR project to Latin America, hoping that Argentina and Brazil will join the project.

So, in the past two years, the buildup of foreign investment from China has stalled. According to the American Enterprise Institute in 2018, the export of Chinese capital decreased very significantly - by 36% (including to the countries participating in the OBOR project - by 12%; to other countries - by 54%). Investment protectionism - along with trade protectionism - is growing all over the world. And in the example of China, this is especially evident. Moreover, in ​​countering Chinese investment, Washington manages to achieve more than in ​​countering the export of Chinese goods.

Author: USA Really