18 September 2017

A growing global footprint

While corporations across the globe compete for a slice of China's consumer spending, home-grown enterprises from Shanghai to Shenyang are now looking beyond their domestic market, ushering in a new chapter that will spread China’s economic influence globally.

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The footprint of China's investment around the world is growing1 and its 'going out' strategy is an increasingly important one2. Despite stricter capital outflow controls, the long-term prospect for outbound investment looks strong, with the Belt and Road Initiative (BRI) promising to be a key catalyst3.

"This initiative is creating a network of trade and financial connections not just within Asia, but with the Middle East, sub-Saharan Africa and Europe," said Stuart Gulliver, Group Chief Executive of HSBC at the recent HSBC China & RMB Forum. "China is now very visibly the world leader in promoting economic globalisation."

In the next five years the country plans to invest US$750 billion overseas4. This will allow Chinese companies to access more markets. It will also boost the country's further integration into the global economy, as well as improve capital flows, influence and connectivity4.

The country's outbound investments continue to rise sharply, growing at 44 per cent year-on-year to $170.1 billion in 2016, according to the country's National Bureau of Statistics5.
"Chinese companies are very heavily focused on the domestic market as a priority. Once that domestic market has achieved some type of sustainable revenue then they start looking externally," explains Michael MacDonald, Chief Technology Officer for Southeast Asia at Huawei.

The so called 'One Belt, One Road' initiative is part of the picture. This development plan spearheaded by China focuses on bolstering infrastructure, developing trade corridors and transport links. The scheme now covers more than 65 countries, 60 percent of the world's population and one third of global GDP6. Outbound investment to countries involved with this initiative totalled US$ 14.5 billion in 20167.

"We see it as a very positive development, it can also be a key driver, not just of Chinese growth in the coming ten to 20 years but regional growth. It's also projected to impact not just the large, well established Asian economies but some of the smaller, emerging Asian economies as well," explains Bill Maldonado, Chief Investment Officer, Equities at HSBC Asset Management.

Currently, the BRI is bringing in new opportunities for companies and enterprises involved in building roads, railways, bridges and ports8. "This is a very big initiative, similar to the U.S. Marshall Plan of the Second World War. It is China's way of exporting its surplus and enhancing trade with different countries," states Dr Frank Tong, CEO of the Hong Kong Applied Science and Technology Research Institute.

China's policy banks and funds are now in place to support this plan including the Asian Infrastructure Investment Bank (AIIB) and the Silk Road Fund, backed by US$100 billion and $40 billion respectively. Last year Chinese companies closed deals worth US$126 billion as part of the Belt and Road Initiative9.

"We see this as a big opportunity for a lot of people, not just for China, but for the destination countries and for any companies who work on such projects. It will certainly stimulate economic development along the Belt and Road," explains Helen Wong, Chief Executive for Greater China at HSBC.

References

  1. China’s troubled M&A deals do not signal overseas hostility, Financial Times
  2. China toughens auditing of overseas investment by SOEs, Xinhua
  3. China encircles the world with One Belt, One Road strategy, Financial Times
  4. President Xi's speech to Davos in full, World Economic Forum
  5. Review of China key 2016 economic figures, China Daily
  6. China to hold meeting on spending billions to reshape world, CNBC
  7. China invested $14.5 billion in Belt and Road countries last year, China Daily
  8. China's Belt and Road Initiative promotes connectivity, CCTV
  9. China pushes forward the Belt and Road with solid progress, Shanghai Daily

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