Drooping Eagle, Soaring Dragon? China Surpasses US in Total Foreign Investment

For the first time in history, China has surpassed the United States in total foreign investment. Moreover, Chinese companies' interests have expanded beyond energy and other natural resources. Analysts explain that this may be an indication that the country's economy is shifting from export-oriented growth to a focus on domestic demand.

Bloomberg confirmed that Chinese firms have purchased over $206.6 billion-worth of foreign assets in 2016, which is more than three times their total investment this time last year. It's also more than the $179.1 billion invested abroad by US investors this year.

According to the Russian business magazine Expert, a dramatic shift can be observed in the scope of Chinese investment activity abroad.

"At first, China's foreign dealings were a way of providing the country with necessary raw materials, including those needed for the creation of a powerful steel industry, and a strong industrial base as a whole," the publication recalled. But in recent years, "the growing appetites of investors have shifted in focus toward the acquisition of well-known brands and companies in high-tech industries."

This, Expert noted, "directly reflects an exit from the export model of growth and reorientation of the economy to rely to a greater extend on domestic demand."

The publication explained that the balance between state and private investors has gradually shifted. Until 2013, China's foreign investment was more than 50% dominated by state companies, whose priority was the purchase of energy and natural resources producers. 

"But with the appearance of private players, new kinds of transactions started to appear, like the purchase of the Milan football club for $821 million, or Legendary Entertainment film studio, which sold for $3.5 billion. State corporations, in turn, have shown a growing interest in the production of [electronics] and agricultural technologies."

Thus, investments in traditional energy resources, which peaked in 2012 with $30 billion-worth of investment, accounted for only $1.5 billion this year. Finance, which peaked at $26.7 billion in 2015, garnered only $8.5 billion this year. Investments in the chemical industry, on the contrary, grew by nearly 24 times – reaching $47.6 billion. Finally, information technology has garnered about $23.8 billion in investment since the start of the year, "confirming the shift in attention toward the new sectors of the economy."

Bloomberg explained that Chinese investment abroad will continue to grow, absent the propping up of artificial barriers. 

Earlier this month, Reuters reported that the US Committee on Foreign Investment, wary of China's 'aggressive' investment policy, blocked a number of transactions involving Chinese companies, citing national security threats. Bloomberg also recalled US lawmakers' recent calls for enhanced scrutiny of Chinese influence in Hollywood, following Chinese property mogul Wang Jianlin's purchases of US entertainment companies.

According to Expert, China's markets too have demonstrated signs of growing concern over the devaluation of the yuan, as well as state restrictions on the size of foreign investment, which have made overseas acquisitions more expensive and time consuming.