China Economic Comment – June 2014

As China’s economy has grown over the past decade, so too has China’s overseas investment. This has become a highly controversial issue in a number of countries, in part due to the difficulties faced by firms and individuals when attempting to invest in China

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China’s role in global investment is growing, but the scale remains small

As China’s economy has grown over the past decade, so too has China’s overseas investment. This has become a highly controversial issue in a number of countries, in part due to the difficulties faced by firms and individuals when attempting to invest in China as well as the considerable influence of state-owned enterprises in China’s major industries. While China’s foreign direct investment has grown significantly in recent years, it still pales in comparison to major global investors such as the United States and Japan.

Data from the United Nations shows that China’s foreign direct investment (which excludes investment in financial assets) has increased strongly over the past decade – rising from around US$2.5 billion in 2002 (around 0.5% of the global total) to US$84 billion in 2012 (a share of 6.1%) (the most up to date data available), making China the third largest investor globally. In contrast, the United States accounted for almost 24% of global investment in 2012, followed by Japan at 8.8%.

In part, the fact that China, the world’s second largest economy, lags slightly behind in terms of foreign investment reflects domestic regulatory constraints – including constraints on capital flows – as well as restrictions imposed by potential host countries for Chinese investment.

Despite the challenges in investing in China, the country is also a major recipient of foreign direct investment. In 2012, China received around US$121 billion in foreign direct investment – or around 9% of the global total – second only to the United States, which received over 12%.

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