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| American Enterprise Institute
A big story in 2016 was money leaving China, including a boom in registered outward investment. A big story in 2017 is supposed to be Beijing cracking down on this outflow, through capital controls and, recently, investigations into high-profile outbound investors.1
While foreign exchange reserves have stabilized and official outbound investment dropped through May, a record-shattering acquisition means 2017 could very well see more outbound investment than 2016. The best depiction of 2017 to date is not investment decline, but the state retaking the dominant role in spending and policy, after the private sector was comparable in importance in 2016.
The China Global Investment Tracker (CGIT) from the American Enterprise Institute and the Heritage Foundation is the only fully public record of China’s outward investment and construction.2 It is not merely asserted totals or a compilation of announcements but is vetted for spending being initiated, to forestall exaggeration. Every transaction is listed, for public use. In the first half of 2017, due to the Chinese state’s acquisition (June close) of Swiss agriculture giant Syngenta,3 investment rose a further 9 percent over the first half of 2016.
For purposes of comparison, excluding Syngenta would yield a roughly one-third drop from the first half of 2016 and a total very close to that seen in the first half of 2015. With Syngenta, the top national recipient was Switzerland, followed distantly by the US, itself followed distantly by Australia and Germany. Agriculture naturally led among sectors, with transport investment also eclipsing $10 billion and energy and property coming close.
The People’s Republic of China’s (PRC) construction activity overseas is often treated by host countries and foreign observers as investment. This is an error—construction activity is valuable but does not involve ownership. While construction contracts are smaller on average, there are more $100 million construction contracts than $100 million investments since 2005. From January through June alone, 40 countries signed such deals to employ PRC engineering companies. Russia, Argentina, and Indonesia led the way, with energy and transport as the top sectors as usual.
The key to the rest of 2017, and perhaps beyond, is state-private tension. Regulators might lift capital controls but punish those seen as evaders previously. This would still deter private investors, and the raw number of deals will remain muted compared with 2016. The exception may be transactions tied to the government’s One Belt, One Road (OBOR) program. OBOR countries’ share of Chinese investment has dropped since the program was announced, but the tag may now translate to more reliable and faster government approval.4
The American government also faces questions of what to approve. Chinese investment in the US fell almost 50 percent in the first half of 2017 versus the first half of 2016. But it still hit $17 billion and has totaled more than $130 billion since 2011. Despite calls in Washington for “reciprocity,” this is far too vague as a policy response to this surge.5 The US needs to explicitly bar market access in sectors identified as vital and to firms that have broken American law. Elsewhere, the door should remain fully open.
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