China sees net capital outflow in 2014

Govt-led overseas investment still dominant: expert

China's outbound direct investment (ODI) surpassed foreign direct investment (FDI) into the country in 2014, meaning that China has become an economy with a net capital outflow, a spokesman for the Ministry of Commerce said Monday.

China's ODI into non-financial sectors stood at $102.9 billion for the whole of 2014, up 14.1 percent year-on-year, said spokesman Sun Jiwen at a press conference.

FDI into non-financial sectors in China totaled $119.6 billion, increasing 1.7 percent from last year. But taking profit reinvestment and investment via third countries into account, China's ODI in 2014 was higher than the FDI, Sun said.

Sun added that the FDI and ODI figures are preliminary and exact figures will be published at a later date.

It marks a fundamental change in China's economic development pattern since the reform and opening-up period, showing the country has transformed into a strong trading power, Sun noted.

Experts said the change is important but there are still obstacles and risks ahead.

"The growth rate of China's ODI will remain high in the future and net capital outflows will be seen in the next few years," Zhang Ning, a research fellow with the National Academy of Economic Strategy at the Chinese Academy of Social Sciences, told the Global Times Monday.

Tian Yun, chief editor of China Macroeconomic Information Network, said the announcement marks a change from the previous norm of China having a trade surplus but net capital inflows.

"This indicates that China is now taking on a more advanced role globally, thanks to its industrial and manufacturing achievements, such as high-speed trains and ultra-high-voltage power transmission," Tian told the Global Times Monday.

In February 2014, a Chinese-led consortium backed by the State Grid Corporation of China won a contract to build an electricity transmission line in one of Brazil's largest hydroelectric projects.

The deal was hailed as a milestone in China's exporting of electricity transmission technology.

While investment in the energy and mining sectors still played the major role, investment has also expanded into the real estate, manufacturing and technology sectors, experts said.

A few notable examples include Beijing-based Anbang Insurance Group's purchase of the Waldorf Astoria New York hotel for $1.95 billion in October 2014 and PC maker Lenovo Group's $2.9 billion acquisition of Motorola's mobile business in the same month.

Also, in June 2014, commercial property developer Dalian Wanda Group purchased Edificio Espana, a prominent building in the Spanish capital Madrid, for 265 million euros ($334 million).

These developments could be seen as a sign of China's rise, Tian said.

"China should further lower the threshold for private companies to invest overseas and intensify the review and approval process for State-owned companies (SOE), due to their poor track record in terms of yield and the fact that many foreign governments are more suspicious when they see a Chinese SOE investing," Tian noted.

"Government-led investment is still dominant and an increased share of outbound investment from the private sector is needed to ensure sustainable growth," Zhang said.

The Ministry of Commerce announced on October 6, 2014 that it had scrapped the approval process for domestic companies' overseas investment projects and replaced it with a filing system to facilitate the firms' development abroad.

Meanwhile, yields from China's previous investments overseas have been poor, compared with those by more seasoned players such as Japan, Tian noted.

"China should first learn from South Korea and Japan, which are focused on investing in infrastructure, and not the US and the UK, which tend to invest in the finance industry," Tian said.

Zhang noted that investment by China in the telecommunications and oil sectors has met some resistance from foreign countries on grounds of national security concerns.

There are also other risks, he said. A few years ago, China bet on the wrong horse by buying energy assets such as oil fields and mines, only to see prices fall rapidly in these sectors.

Separately, the Ministry of Commerce said on Monday it is soliciting public opinion on a new foreign investment law, which is aimed at easing restrictions on foreign investors and granting them easier access to the Chinese market.