2015-11-01

Chinese Outbound Investment and the Yuan

The numbers of $2 trillion to almost $15 trillion is a wide range.
Libra 6: CHINA TO INVEST $14 TRILLION ABROAD IN THE NEXT FOUR YEARS: ARE YOU READY?
According to IMF calculations, a speedy liberalization of cross-border capital movements could produce over several years net outflows from China equal to as much as 15% of the country's GDP, roughly $1.35 trillion. The Chinese would send as much as $2.25 trillion overseas, while foreigners would invest only $900 billion in China.

...Recent report by The Mercator Institute for China Studies** [established in 2013 and based in Berlin, one of the largest international think tanks for policy-oriented research into and knowledge of contemporary China], says Chinese foreign direct investment is going to grow from $6.4 trillion in assets to $20 trillion by 2020.

...The question remains are we ready to see sensitive infrastructures to be owned and operated by Chinese companies? Airports, power plants, communication infrastructures…The answer is probably: yes, as long as Western companies can do the same in China but the Chinese central government is not ready yet for such liberalization.

A surge in Chinese corporate investment abroad will likely be controversial. In the 1990s, Japanese purchases of U.S. assets—from movie studios to high profile real estate—created a firestorm. Reciprocity was a huge issue. It will be a far bigger issue as China gets into the same situation, entire sectors of Beijing’s economy, dominated by state-owned companies, are off-limits to foreign investors.
The tea leaves say there's going to be a trade war and possibly a military conflict. China doesn't want to open up too quickly and the Western public has had enough of globalization. It is possible to peacefully renegotiate the terms of trade, but more likely it is all going to blow up given the prevailing social mood.

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