A senior Ministry of Commerce official said that with an annual growth rate of 20% to 30%, outbound direct investment will overtake foreign direct investment within three years.
Mr Zheng Chao commercial counselor at the Department of Outward Investment and Economic Cooperation at the ministry told China Daily that the United States, the European Union and Latin America are set to see a rapid increase in ODI from China. He added that "Outbound direct investment is set for the fast track and will grow by between 20% and 30% in the next five years."
Earlier figures from the ministry suggested that ODI would take five years to pass FDI.
A report by the US Asia Society said that China's ODI is set to surge, with assets to reach between USD 1 trillion and USD 2 trillion worldwide by 2020. ODI in the non financial sector had reached USD 258.8 billion by the end of 2010 as compared to USD 1.05 trillion for the total FDI figure over the last three decades.
But the report also highlighted potential political obstacles, especially from the US Congress, which could have a chilling effect despite China doubling its investment there every year.
Global foreign investment shrank by 40% in 2009 thanks to the world financial crisis. But China's ODI in the non financial sector increased by 6.5% to USD 43.3 billion that year. That saw China rise three places to ninth in the global investment league.
In 2010, China's ODI in the non financial sector jumped 36.3% to USD 59 billion, a momentum that is predicted to continue.
Mr Zheng said that "The transformation of China's economic development mode makes a pressing for companies to go overseas, either for technology or sales. It is risky for China to hold a large volume of foreign exchange reserves. The government should encourage Chinese companies to expand overseas and use the reserves to alleviate pressure."
China has focused on FDI since reform and opening up. Its entry into the World Trade Organization in 2001 has seen ODI flourish.
Mr Lu Jinyong director of the China Research Center for FDI at the University of International Business and Economics said that "FDI has helped Chinese companies sharpen their competitive edge, making them better equipped to go overseas."
Mr Zheng said that overseas investment has mainly gone to the Asia-Pacific region and Oceania, but the US, EU and Latin America will witness a rapid growth of investment from China.
According to the ministry, China's ODI in the US grew by 81.4% to USD 1.39 billion and in the EU by 297% to USD 2.13 billion in 2010, from the previous year.
Meanwhile, its ODI in the ASEAN region and Australia rose by merely 12% and 20.5%. Investment in Japan surged by 120%.
Mr Gary Locke US Commerce Secretary said that the US should do more to attract investment from China.
But the US Asia Society report is not optimistic about prospects of Chinese investment in the US. It said the US believes that Chinese investment is largely driven by political reasons rather than the profit motive.
An executive from Huawei Technologies Co Limited said that the company is interested in expanding in the US, but restrictions due to political reasons are a major challenge.
Mr Zheng said that state governments in the US are showing growing interest in Chinese investment but Congress isn't always welcoming. China has invested in 35 of the 50 US states, with the largest investments in Texas, New York and Virginia.
China will urge the US to lift trade and investment barriers during the Third China US Strategic and Economic Dialogue to be held in Washington next week.
In Africa the picture is less clear. Although Chinese investment in the continent has been rising, especially in the agriculture, infrastructure and natural resource sectors, Mr Zheng said the prospects are not as good as expected, because of possible political instability.
Mr Zheng said that "More and more Chinese investment overseas will be realized through mergers and acquisitions. And state owned enterprises will lead the way."
In 2010, China's overseas investment through M&A was USD 23.8 billion, or 40.3% of the total, compared with USD 19.2 billion and 34% in 2009. Most of the M&A projects are in the mining, manufacturing, and power supply sectors.
Private companies are also eyeing expansion overseas. Zhejiang-based Geely Holding Group, for instance, bought Volvo's car unit from Ford Motor Co for USD 1.8 billion in August 2010.
Mr Teng Hexian chairman of Beijing Runfar Investment Group said that "We are looking beyond the domestic market. Capital is not an issue, but where and how to invest is a big problem."
Runfar, which has assets worth CNY 3 billion, has invested in China's energy sector.
Mr Zheng said that "There will be more cases like Geely, but private companies have to boost their management."
(Sourced from China Daily)
