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What’s the future of China’s overseas investment?
By Joshua Aizenman
May 4 2015

China offers a prime example of export-led growth that has benefited from learning by doing and by adopting foreign know-how, supported by a complex industrial policy. Arguably, a modern version of mercantilism has been at work. The Global Crisis put an abrupt end to China’s export-led, high growth and large current-account surplus trajectory. In the US, the private sector was forced to de-leverage and lower demands for imports. Other crisis-hit developed countries also cut back on imports. Consequently, the Global Crisis and its aftermath induced rapid Chinese internal balancing, reducing the scope of future reserve hoarding. Since the Crisis, China’s current-account surplus fell from 10% of GDP in 2007 to 2% in 2013.

A legacy cost of Chinese policies during the 2000s is its skewed external balance. China’s been long on low-yielding foreign assets (mostly international reserves) and short on high-yielding assets (mostly large liabilities associated with past net FDI inflows). While China’s net external financial assets in 2013 was about 20% of China’s GDP, the real net return on these assets was negative (see Hanemann 2014). This reflects two fundamental factors:
  • The low real return on Chinese international reserves, which is two-third of its gross external assets; and
  • The high return on past FDI inflows to China, which accounts for about 60% of Chinese external liabilities.1
The low return on Chinese foreign assets is bad news, especially considering the rapid ageing of China’s population. This is in contrast to Japan, where the sizable return on its foreign asset position helps in buffering the future income of its rapidly greying population.

External rebalancing

A way of mitigating the adverse consequences of China’s legacy of external balance sheet exposure is external rebalancing, that is ‘swapping’ some of its international reserves with higher yielding foreign equities and outward Chinese FDI (e.g. Shotter 2014). Indeed, China embarked on diversifying its holdings of dollar international reserves by channeling surpluses into a sovereign wealth fund, encouraging outward FDI in tangible assets, and offering much higher expected returns.2 The outcome has been growing FDI in the global resource sectors and infrastructure services, especially in commodity and mineral exporting countries, which includes developing countries and emerging markets in Africa and Latin America. In a way, China has joined the trend of other emerging markets.3

Bilateral central bank swaps

After the Global Crisis in 2008, China embarked on large bilateral currency-swap agreements with other countries. This was done in tandem with the unprecedented provisions of swap-lines among the OECD countries and the more selective provision of four swap-lines by the Fed to selected emerging market economies. Comparing the bilateral swap-lines offered by the Fed and the People’s Bank of China reveals key differences. Most of the swap-lines offered by China have been to commodity countries – developing and emerging market economies – whereas most of the bilateral swap-lines offered by the Fed are between the OECD countries and four emerging markets: Brazil, South Korea, Mexico, and Singapore.

In Aizenman and Pasricha (2010), we point out that the selection criteria explaining the Fed’s supply of bilateral swap-lines to emerging markets were:
  • Close financial and trade ties;
  • A high degree of financial openness; and
  • A relatively good sovereign credit history.
Chances are that similar factors account for the Chinese supply of renminbi bilateral swap-lines to a growing list of developing and emerging markets, as has been vividly illustrated by Garcia-Herrero and Xia (2015).4 This strategy blends very well with the trade internationalisation of the renminbi in the context of the broader outward FDI strategy of China, and is consistent with the channeling of China’s net foreign-asset position into an outward FDI-cum-credit strategy.

New evidence

In our own work, we take stock of what may be the new chapter of Chinese-outward mercantilism, which is aimed at securing a higher rate of return on its net foreign asset position, leveraging its success in becoming the global manufacturing hub (Aizenman et al. 2015). We suppose that in the aftermath of the Global Crisis, China bundled outward FDI with its finance dealing (lending, swap-lines, trade credit), its trade and foreign investment (including exports of Chinese capital products and labour services), and leveraged its growing market clout.

This bundling strategy has been mostly applied to developing and emerging market economies, and to ‘commodity-countries’. During the Global Crisis and its aftermath, China rapidly increased its outward FDI, swap-lines, imports and exports to selected countries. Such a bundling strategy is consistent with Adams and Yellen (1976) – bundling as a manifestation of market clout in which the bundling party leverages its market powers aimed at increasing its surplus. Accordingly, China may use its market power in the provision of ‘swap and lender of last resort’, supplying capital goods and infrastructure services to its trading partners.

We find that:
  • Chinese manufactured exports to, and commodities from, its trading partners are positively associated with the outflows of FDI to the recipient countries;
  • The provision of a renminbi swap-line is positively associated with the size of Chinese bilateral trade with the swap-line recipient countries; and
  • Small countries tend to be the recipients of renminbi swap-lines.
Focusing on Chinese greenfield FDI abroad and distinguishing between the FDI outflows into tradable sectors, non-tradable sectors, and natural resources, we find:
  • Chinese trade influences the natural resources sector FDI;
  • Exports of manufactures are negatively associated with FDI outflows while the effects of commodities imports are positive;
  • The association between Chinese FDI outflows in the natural-resources sector and commodities imports has become stronger since the Global Crisis;
  • The positive association between Chinese-outward FDI and commodities imports increases with the provision of renminbi swap-lines to China’s trading partners.
The influence of renminbi swap-lines is especially large on the Chinese-outward FDI in the natural resources sector. The overall findings support the notion that in the aftermath of the Global Crisis, Chinese-outward FDI is bundled with trade and financial linkages, thereby increasing the country’s influence in the international markets, and securing its long-run access to a stable supply of commodities.

Figure 1 shows a heat map of average Chinese bilateral trade, outward FDI, and renminbi swap-lines as a ratio of a recipient country’s GDP in the sample. Figure 2 overviews the relationship between Chinese FDI, trade, and swap-lines. The diamond chart plots – based on bilateral data – Chinese FDI, exports, imports, and swap-lines, all measured as a ratio of a recipient country’s GDP and weighted by the sample means. The dotted, dashed and solid lines plot the statistics before, during and after the Global Crisis (2008-2009), respectively. The diamond charts indicate concurrent and significant surges in Chinese-outward FDI, swap-lines, imports and exports to the selected countries.

Figure 1. Chinese-outward FDI, bilateral trade, and renminbi swap-lines. The heat maps plot sample means of greenfield FDI, aggregate FDI, bilateral trade and renminbi swap-lines as a ratio of recipient country’s GDP. Darker colours corresponds to higher intensity

A. China’s greenfield FDI

aizenman-fig1a-1-may.png


B. China’s aggregate FDI

aizenman%20fig1b%201%20may.png


C. China’s bilateral trade

aizenman%20fig1c%201%20may.png


D. Renminbi swap-lines

aizenman%20fig1d%201%20may.png


Figure 2. Relationship between Chinese FDI, trade, and swap-lines

The diamond chart plots – based on bilateral data – Chinese FDI, exports, imports, and swap-lines, all measured as a ratio of a recipient country’s GDP, weighted by the sample means. The dotted, dashed and solid lines plot the statistics before, during and after the Global Crisis, respectively. The recipient countries are listed in Table 1.

A. Chinese greenfield FDI

aizenman%20fig2a%201%20may.png


B. Chinese aggregate FDI

aizenman%20fig2b%201%20may.png


Table 1. China’s top industry activities and investing companies in outward greenfield FDI before and after the Global Crisis. This table reports the largest capital investment by China in host countries from January 2003 to January 2015, based on the ‘fDi Intelligence database’ (a database run by the Financial Times).

aizenman%20table1%201%20may.png


The shortness of the sample we use and the lack of more detailed data do not allow us to evaluate the success of the bundling strategy in delivering higher returns to the Chinese net foreign asset position. The willingness of China to extend credit lines and invest in countries with a history of default – including Argentina, Venezuela, and Zimbabwe – raises concerns about the growing exposure of China to sovereign defaults and the risk of partial nationalisation of its outward FDI assets.

‘In kind’ payment

One should keep in mind, however, that some Chinese lending to commodity countries is secured by ‘in kind’ long-run payment in the form of oil flows and other commodities back to China.5 Arguably, Chinese outside exposure may be also partially hedged by the growing dependence of some developing countries on Chinese infrastructure services needed to maintain their upgraded rail system, the growing importance of China as the prime destination of their imports, and, for some, their dependence on China as their only ‘lender of last resort’.6

While it is premature to estimate the returns on this bundling strategy, the outcome has been markedly increased access for emerging African, Asian and Latin American countries to improved infrastructure services that are both co-financed and constructed with the help of Chinese capital goods and knowhow and co-paid by the growing exports of commodities and minerals to China. The proposed formation of the Asian Infrastructure Investment Bank, in which China would be the main shareholder, may well be viewed as a follow up of this bundling strategy.


 
With the development of "One Belt One Road" and the establishment of the Asian Infrastructure Investment Bank, the BRICS Development Bank, and the Silk Road Fund, China is now assuming greater responsibilities in the international financial system, and the internationalization of RMB is gaining further momentum.

Some media have commented that although this process cannot be as smooth and plain as silk, it’s very likely to move faster than most people have expected. Some multinational enterprises have expressed their approval of RMB Settlement.

Multinational enterprises favor RMB settlement - People's Daily Online
 
Fish detection system for toxins wins Chinese company invention award
Apr 18, 2015

A method for detecting toxins through the reactions of fish embryos has won Chinese company Vitargent International a top prize for inventions, organisers said Friday.

The Grand Prix at the International Exhibition of Inventions of Geneva went to Vitargent, from Hong Kong, for the natural method of finding toxins.

"The company uses embryos of zebra fish whose reactions make it possible to study more than a thousand toxins at the same time," organisers said in a statement.

"This method can be used in many areas such as food, medicine, plastic products, cosmetics or any other substance which can enter into contact with people, like water, for example."

The fish embryos would react in between 48 and 72 hours after being exposed to a product being tested for toxicity.

A thousand inventions were under review and a total of 55 were given awards.


Fish detection system for toxins wins Chinese company invention award
Should be extremely useful screening contaminated seafood coming from Japan
 
China Ranked No.17 on the World Tourism Competiveness Index
2015-05-07 21:13:43 CRIENGLISH.com Web Editor: Li
nanjing.jpg


A large number of tourists seen outside the Confucius Temple in Nanjing city in east China's Jiangsu province on May 2, 2015, the second day of the May Day holiday. [Photo: Chinanews.com]

A report released by the World Economic Forum shows that China has risen to the 17th spot on the world tourism competiveness list. This is a steep jump from number 45 just two years earlier.

The report ranks 141 countries based on an evaluation of their potential to generate economic and social benefits. Spain topped this year's world rankings and Japan was listed as the most competitive tourism destination in Asia.

Other popular traveling destinations including France, Germany, Britain, and Switzerland have all managed to hold onto their top positions in the global rankings.

The report also highlights that the gap between developed countries and emerging economies in terms of competiveness in the tourism sector is narrowing.

East Asia has become the most dynamic travel region in the world in recent years due to the rapid growth in the number of both international and local tourists.

Except Japan and China, seven other Asian countries are listed among the top 50 competitive economies, including Singapore, Malaysia, Thailand and Indonesia.

The report says that Asian countries need to further improve infrastructure and develop digital tourism services, such as making use of the internet and mobile terminals to disseminate tourism information.

According to the World Economic Forum, the global tourism industry grew at 3.4% per annum in the past four years, accounting for one tenth of the world's GDP. Experts say that this number is expected to reach 5.2% in the next five years.






weforum-logo.db90160d8175c5a08cdf6c621e387d18.png
The Travel & Tourism Competitiveness Report 2015


http://www3.weforum.org/docs/TT15/WEF_Global_Travel&Tourism_Report_2015.pdf


www3.weforum.org docs TT15 WEF_Global_Travel&Touri.png



Beijing's April second-hand home sales hit 25-month high
English.news.cn 2015-05-03 20:29:24

BEIJING, May 3 (Xinhua) -- The transaction volume of second-hand homes in Beijing reached 17,191 in April, the highest in nearly 25 months, according to new data from property agent Centaline.

Zhang Dawei, chief analyst with Centaline, attributed the rise to easing policies on buying and selling the second-hand homes.

In late March, China's central bank cut the minimum down payment requirement for second home buyers to 40 percent.

Minimum down payments for first and second home purchases using the housing provident fund, which offers urban residents lower rates than those of commercial banks, were also lowered.

Business tax will be exempted on sales of homes purchased more than two years ago, in stead of the previous requirement of five years, announced by the Ministry of Finance.

The property market will be better this year, Zhang said, citing continuous policy stimulus. The demand for improved housing will increase and add energy to the brisk market.

China's property market took a downturn in 2014 due to weak demand and an excess of unsold homes. The cooling has continued into 2015, with both sales and prices falling and investment slowing.

Since November 2014, the central bank has cut interest rates twice. Banks' reserve requirement ratio (RRR) was also cut twice.
 
China-developed encephalitis vaccine set to protect nearly 1.5 mln Lao kids

Source:Xinhua Published: 2015/4/1 20:15:53
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Nearly one and a half million Lao children are set to benefit from a China-developed vaccine that prevents the spread of a deadly and debilitating mosquito- borne virus which has no known cure.

The vaccine against Japanese encephalitis (JE) is being offered across Laos in a concerted campaign towards protecting all children in the country from the virus found in tropical.

While not all infections result in the development of the disease, for those who it does, the symptoms include potential for death, reduced life expectancy and lifelong neurological disabilities.

The campaign is a cooperative effort between the Lao government and international organizations such as WHO, UNICEF and the Gavi public-private vaccine alliance.

The partners are hoping eradicate the disease from the country and beyond by vaccinating children, deemed the most at risk group.

Addressing the launch of the campaign, Laos' Deputy Prime Minister Dr Pankham Viphavanh said 1,460,000 Lao children aged 12 months to 15 years would receive preventative doses free of charge.

He called on all concerned to work together to ensure the target of 95 percent immunization was exceeded in every village and district across the country.

The vaccine, developed by Chengdu Institute of Biological Products, is the first from China to be pre-qualified by the WHO and continued to undergo further research to help share the benefits more widely among those for whom it is most needed, according to Yang Lingjiang, manager of international business and cooperation of the institute.

Gavi CEO Anuradha Gupta commended Laos on its commitment to spreading the benefits of vaccination and disease prevention to its population, and highlighted the positive socio-economic returns from investment in prevention.

"20,000 die from JE worldwide every year, and those who survive suffer from extreme disabilities," she said.

"Vaccination does not just bring down morbidity and mortality especially among children, but also brings economic gains because children who are vaccinated are healthier, less prone to illness, have better school attendance and better prospects throughout their lives."
Posted in: Medicine
 
China's economy is changing from industry-dominated to service sector-leading, representing a new bright spot.

Data released by the National Bureau of Statistics recently show that in the first quarter the added value of China's tertiary industry accounted for 51.6 percent of GDP, up 1.8 percentage points from the same period in 2014 and 8.7 percentage points higher than secondary industry.

http://en.people.cn/n/2015/0508/c98649-8888988.html

China's highest customs starts operation in Xinjiang :china::china::china::china::china:

Xinjiang's Karasu Customs, China's only land port open to Tajikistan, officially opened on Friday after ten years of preparation.

The port, located at an altitude of 4,100 meters. The oxygen level is less than 60 percent of that of the plains and its terrestrial radiation is as high as 500 millisieverts, five times the safe level.

 
Policemen escorts Li Huabo, the second suspect from China's "100 most wanted economic fugitives" list, after he was repatriated from Singapore on May 9, 2015, as part of operation "Sky Net".

Second most-wanted fugitive on Interpol list extradited - People's Daily Online



China's southwestern province of Sichuan debuts quake insurance program

China's ‪#‎Sichuan‬ Province is launching a pilot program that insures ‪#‎earthquake‬ victims and aims to protect long-term residential houses from possible destruction. It's the first program of its kind in the country, and the local government will provide subsidies to residents to help move the program along.

The ‪#‎insurance‬ will cover damages to houses in earthquakes with a magnitude of five or higher. It also includes direct damages caused by landslides, fires, volcano eruption, explosions, and other related disasters induced by earthquakes within the past 72 hours.

There will be 6 compensation levels under the program. Residents can buy insurance that pays up to 60 thousand yuan for rural residents and 150 thousand yuan for urban residents, if their houses are destroyed in a major earthquake. The insurance will be in effect for one year and is renewable.

The Sichuan government will also inject 20 million yuan as the launching fund of the program, and will inject more capital based on the situation in the future.

According to local officials, during the trial period, local governments at different levels will pay 60 percent of the insurance premiums, and individual buyers will pay 40 percent. For rural residents who are receiving insurance of minimum living standards, and low-income disabled residents, the government will pay the full amount of the premiums.

China’s southwestern regions are more prone to earthquakes since they are located on the Himalayas-Mediterranean seismic belt, including Tibet, the western part of Sichuan Province and the parts of Yunnan Province.

The devastating 8.0 magnitude earthquake that struck Wenchuan County in Sichuan in May 2008 has left over 87,000 people dead and missing. In April 2013, Sichuan’s city of Ya’an was also hit by a 7.0-magnitude earthquake.

 
Chinese company brings golf resort to Cuba

‪#‎Chinese‬ company Beijing Enterprises Group is working with the ‪#‎Cuban‬government to build a ‪#‎golf‬ resort in time for the closing of this year's International Tourism Fair in Havana, according to Juventud Rebelde, local Cuban daily newspaper.

President of the Beijing Enterprises Group, Wang Dong, along with Cuba’s Tourism Ministry’s business director Jose Reinaldo Daniel, signed a letter of intent which gave the green light t...

 
Huawei Announces Establishment of European Institute
2015-05-08
CRI

Telecommunication giant Huawei announced Thursday the establishment of its European Institute, at the European Business Summit (EBS) which took place in Brussels.

Located in Leuven, Belgium, the Huawei European Institute will coordinate research institutions of this Chinese equipment manufacturer in Europe. This is an initiative of Huawei in its overall innovation strategy.

Huawei currently has 18 research institutions in eight European countries, with more than 1,200 researchers, to address next-generation network technologies (5G).

In his speech to the EBS, rotating CEO of Huawei Guo Ping said the European Institute would strengthen cooperation with European industrial and academic circles to promote "Europe 4.0", "Digital Europe" and "smart growth" in Europe.

The president of the Huawei European Institute is Zhou Hong, who is in charge since 2014 in research, standardization and technological cooperation of Huawei Europe. Its vice-president is Walter Weigel, former Director General of the European Institute for Telecommunications Standards (ETSI).

The establishment of the European Institute represents the will of Huawei to expand its investment in Europe. Being in Europe since 2000, Huawei has created more than 9,900 jobs there last year. In 2014, Huawei had more than 200 technical cooperation projects in Europe, participated in 17 "Framework Programs" and the "Horizon 2020" of the European Union (EU).
 
Alibaba steps up overseas investment
Source:Xinhua Published: 2015-5-11 14:56:01

Chinese e-commerce giant Alibaba Group is stepping up acquisitions of overseas companies to increase its presence in the global market after securing dominance at home, China Securities Journal reported on Monday.

The tech conglomerate has bought a large stake in US online retailer Zulily for 56 million US dollars, allowing it to gain footing across the Pacific. The company has been eager to stretch its business network to the overseas market following success in China.

Alibaba has invested big in US e-commerce companies, including luxury shopping website 1stdibs and ShopRunner, a shipping service provider for retailers. It also reached an agreement with Costco, the second largest retailer in the United States, to help the American company sell products in China.

In a better-than-anticipated financial report for the first quarter of the year, the company posted revenues of 17.43 billion yuan (2.85 billion US dollars), up 45 percent from a year earlier.

However, its revenue from overseas markets accounted for less than 9 percent of the total, dwarfed by the 80 percent made in the domestic market.

Boosted by the stellar performance, the company's shares on the New York exchange jumped 1.23 percent to close at 87.06 US dollars on May 8.
 
Salaries for fresh graduates jump 20%
Shanghai Daily, May 12, 2015

Salaries for fresh college graduates jumped 20 percent last month from a year ago, with the biggest hirers being information technology and Internet firms, recruitment portal zhaopin.com said yesterday.

The average salary offered for fresh graduates was 4,793 yuan (US$773.06) per month, about 840 yuan more than a year ago, the website said in a survey conducted in April that covered 58,996 university students who are slated to graduate in July.

Law graduates were highest paid with an average salary of 5,200 yuan a month, while philosophy graduates earned the lowest average salary of 3,667 yuan, the survey said.

Firms paid higher salaries amid better business prospects and young job seekers also demanded higher wages, the survey said.

Information technology and Internet companies were the most popular employers among fresh graduates, according to the survey.

China's FDI up 11.1% in Jan.-April

Source: Xinhua | May 12, 2015

Foreign direct investment (FDI) on the Chinese mainland jumped 11.1 percent year on year in the first four months of 2015, settling at 273.61 billion yuan (US$44.49 billion), the Ministry of Commerce said on Tuesday.
 
Core technology key to China boost

As China shifts gears from a manufacturing-driven ‪#‎economy‬ to an innovation-driven one, problems and limits of Chinese firms have surfaced – namely, lacking core ‪#‎technology‬.

China’s robotic science is a clear case. China is the world's number-one market for ‪#‎robots‬. It overtook Japan in 2013. In 2014, the sales of robots surged 54% from a year earlier to 56,000. That's a quarter of the global sales of robots.

But 70% of the market in China is owned by global leading manufacturers and patent holders, such as Swiss ABB and Germany’s Kuka. The 30% left over is shared by over 400 fragmented Chinese robot assemblers.

And because of the high research and development standard in the sector, the bulk of patent holders in China are universities, instead of private companies – the most active players in the U.S.

“When it comes to key technology, or core components in devices, we have a huge dependency on non-Chinese manufacturers. It's urgent to boost our own innovation ability,” said Mao Weiming, Vice Minister of Industry and IT.

There are people trying to change the situation. China is making more high-end medical devices, challenging foreign dominance in the sector.

Machinery manufacturing is also taking off. In 2014, machinery became the biggest part of Chinese exports to America – accounting for almost half.

Also, China-based Broad occupied over 10% of the U.S. market with the central air conditioner it manufactured.

"Our product is the most expensive in the U.S. market, but our non-electric air conditioners occupy the largest share," said Wang Shuguang, Broad’s general manager.
 
Core technology key to China boost

As China shifts gears from a manufacturing-driven ‪#‎economy‬ to an innovation-driven one, problems and limits of Chinese firms have surfaced – namely, lacking core ‪#‎technology‬.

China’s robotic science is a clear case. China is the world's number-one market for ‪#‎robots‬. It overtook Japan in 2013. In 2014, the sales of robots surged 54% from a year earlier to 56,000. That's a quarter of the global sales of robots.

But 70% of the market in China is owned by global leading manufacturers and patent holders, such as Swiss ABB and Germany’s Kuka. The 30% left over is shared by over 400 fragmented Chinese robot assemblers.

And because of the high research and development standard in the sector, the bulk of patent holders in China are universities, instead of private companies – the most active players in the U.S.

“When it comes to key technology, or core components in devices, we have a huge dependency on non-Chinese manufacturers. It's urgent to boost our own innovation ability,” said Mao Weiming, Vice Minister of Industry and IT.

There are people trying to change the situation. China is making more high-end medical devices, challenging foreign dominance in the sector.

Machinery manufacturing is also taking off. In 2014, machinery became the biggest part of Chinese exports to America – accounting for almost half.

Also, China-based Broad occupied over 10% of the U.S. market with the central air conditioner it manufactured.

"Our product is the most expensive in the U.S. market, but our non-electric air conditioners occupy the largest share," said Wang Shuguang, Broad’s general manager.



Even for the Chinese manufacturers, almost all the more technical parts are imported.
Possession of Core technology is very important.
 
China software sector revenues up 18 pct in Q1

English.news.cn 2015-05-13 15:51:27

BEIJING, May 13 (Xinhua) -- Business revenues for China's software sector increased 17.5 percent year on year in the first quarter to 880 billion yuan (144 billion U.S.dollars), latest data revealed.

The growth rate for the quarter increased by 1.7 percentage points compared to the rate registered for the Jan.-Feb. period, said Chen Wei, director of the software service sector department under the Ministry of Industry and Information Technology.

"Due to innovation and technological upgrades, more and more software products became applicable, which further boosted the growth of hardware products," Chen said at a press conference held here Wednesday for the upcoming 19th Int'l Soft China, an exposition event to be held May 27-29 in Beijing.

The sector's fast growth has become a shining spot in China's economic development, the official said, adding it will play a core role in leading industrial innovation, boosting digitalization in industries and safeguarding nation's information security.

The Chinese government is pursuing two major development strategies, including "Internet Plus" and "Made in China 2025", to better the economy and upgrade industrial development with advanced technologies.

Sponsored by the Chinese government, the exposition is expected to attract more than 600 domestic software manufacturers as well as 30 software companies from overseas, including the United States and the Republic of Korea, Chen said.
 

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