In November, I blogged about Chinese academics warning that the figures about Chinese acquisitions overseas should be seen with a grain of salt. In December, Huang Yiping, a professor at Peking University’s Chinese Centre for Macroeconomic Research, published another unorthodox analysis in the Chinese edition of Financial Times. Huang claims that only 18% of Chinese investment overseas in 2006-08 was in resources, whereas 77% was in trade. From this he draws the conclusion that there is such a thing as a “Chinese model” of overseas investment, in that its principal purpose is not to move production outside the country but rather to increase the competitiveness of production in the country; and that the reason behind this is China’s government controls on capital flows that concentrate money in the hands of a few large state enterprises. In other words, Huang sees overseas investment as still primarily a way for companies to wiggle their way out of government restrictions within China, and only secondarily a genuine pursuit of overseas assets.
One question I have if Huang’s analysis includes investments in Hong Kong, which account for 80% of overseas investment. As others have pointed out, it is clear that in this particular case we are not talking about real investment. But would the picture be different if we excluded this part?
Incidentally, the article points to an interesting development: Western media like FT, BBC or Reuters are increasingly becoming Chinese media, in the sense that they serve as alternative platforms of Chinese journalism from within China rather than channels of translating Western perspectives into Chinese.
Also in December, 21st Century Economic Herald published an article on the government’s reaction to the exposure of large loss-making investments abroad by state enterprises under the central government, particularly the Mecca Light Railway case (see News, 22 December, 29 November and 5 November 2010). It cites SASAC’s data that, at the end of 2009, there were 108 such enterprises that invested a total of over 4 trillion yuan abroad, in over 5901 enterprises abroad (i.e. each central state enterprise invested on average in 60 different businesses abroad!) Profits from investments abroad made up 38% of the total profits of these enterprises, and for some as much as 50%. Nonetheless, there are concerns about the safety of overseas investments, and concerns about the flight of state capital abroad via these investments “have become a major challenge to the state’s efforts to maintain and increase the value of its assets.”
Ten years ago, under Zhu Rongji’s premiership, there was a similar concern, although at that point the flight of capital was taking place via trade enterprises in places like Eastern Europe, rather than fixed investments. Managers of state enterprises have been allowed to register private enterprises abroad in order to simplify business (and, often, avoid drawing attention to the state enterprises involved), but while at the time these tended to be relatively modest trading companies, the capital involved is now much larger and has given rise to a structure of ownership that is opaque to everyone, including Chinese authorities, and that involves even businesses registered under the name of foreign straw men. According to SASAC officials, the losses made by state enterprises in visible contracts are just the “tip of the iceberg.” They accuse top managers of “creating their own kingdoms” and blindly rushing into investing without following proper approval and risk assessment procedures.