China’s Growing Overseas Portfolio

SHANGHAI — A study released last week by the Asia Society in New York forecast that over the coming decade China could invest as much as $2 trillion in overseas companies and projects, with a big share of that money heading to the United States.

But analysts say that just as startling are figures not included in the study, which show the explosive growth of China’s overseas lending and portfolio investments.

According to figures released by CEIC Data, a division of ISI Emerging Markets, China’s overseas lending and trade finance spending reached $102 billion last year, up from $19 billion in 2008.

In addition, the United States Treasury department released figures last week that show that the value of China’s holdings of United States stocks climbed to $127 billion in June 2010, up from about $3 billion in 2004.

With the world’s largest foreign exchange reserves and a growing number of state-owned companies bidding to acquire overseas assets, China is quickly shifting from being a country known for exports to one capable of making huge investment in global financial markets, analysts say.

“What is striking is that China is the first emerging market to become a major player” in the global financial markets, through its outward investments, saysEswar S. Prasad, a professor of trade policy at Cornell University. “This represents China’s increasing use of its financial prowess to strengthen its economic linkages around the world.”

Professor Prasad says China is not just investing in overseas companies and factories; it’s also offering aid to resource-rich countries in exchange for stable, long-term supplies of energy and natural resources.

Taken together, the Asia Society study and the statistics released by the United States Treasury and CEIC offer a broad portrait of China’s “go global” strategy, Beijing’s ambitious effort to diversify the state’s investments while also seeking new sources of energy, resources and technology.

The International Monetary Fund says China could go global in another way: investing in overseas land and food resources. China already imports huge quantities of grain from the United States and Latin America. Now, Chinese companies are seeking to buy or lease large plots of land, particularly in Latin America.

The shift from being a country that attracts inward investment to one that invests overseas, is well under way.

On Friday, the English language newspaper, China Daily, quoted a senior Ministry of Commerce official saying that within three years China’s overseas direct investment would surpass its inbound foreign direct investment. The official said much of that investment would be directed toward the United States, Europe and Latin America.

That would be a major milestone, since China’s economic boom has been powered by decade by overseas companies investing in manufacturing and export-related industries here. Last year, China’s inbound foreign direct investment was about $100 billion, while outbound investments in the non-financial sector were about $59 billion.

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