Chinese FDI Growth In Developed Countries Soars; Germany Emerges as a Preferred Target for Chinese Investment (7/19)     Print

Burgeoning Foreign Direct Investment (FDI) by China into the developed world is the focus of a recent report issued by The Bertelsmann Foundation, and aptly titled “Cash in Hand: Chinese Foreign Direct Investment in the U.S. and Germany.”

The report’s scrupulously documented numerology on the increase of Chinese investment abroad is coupled with the eye-popping suggestion that Germany may ultimately overtake the U.S. as the leading destination for Chinese cash.

Historically China has invested more of its growing cash hoard in the U.S. than Germany*, Chinese reports indicate the that Germany has made huge gains and Bertelsmann suggests solid reasons why those gains could be real and permanent. The authors argue that Germany is more open to Chinese investment than the U.S., citing the fact that China has more FDI projects in Germany than any other country—158 FDI projects from China in 2011 compared to 110 in the U.S. They single out knee-jerk, negative public responses to Chinese investment and an opaque CFIUS review process that lacks transparency as key reasons that Beijing is increasingly looking to place its’ investments outside the United States.

Furthermore, the Bertelsmann report points to the significant slide of the U.S. in the Global Competitiveness Report published by the World Economic Forum from first—most competitive--a few years ago, to fifth place in the most recent report.   At the same time Germany has moved has moved from 13th place to 6th, just a hair behind the U.S. in the most recent rankings. Labor costs and corporate tax rates also favor Germany.

The larger story here, well described by Bertelsmann, is the exploding growth of Chinese FDI around the world and increasingly in the developed economies. Net Chinese outward FDI flow reached $68.81 billion in 2010 increasing by 21.7 percent from the year before, and increasing from only $1 Billion in 2000.   These are still relatively small numbers, but with the rate of growth and the declared “going out” policy of China, the numbers are expected to continue to soar. The report cites an Asia Society estimate that China FDI outflow will be over $1 Trillion by 2020. China has, as the report notes, “cash in hand.”   Foreign exchange reserves in China at last count in June 2011 are U.S. $3.2 trillion and growing rapidly.

*The Report cites varying figures from different sources but according to Chinese government , FDI in the U.S. was U.S. $900 million in 2009, with some figure from other souces indicating a much higher figure. Most recent figures from China indicate over US $1 Billion of Chinese FDI in Germany as of 2010.