China

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Chinas Capital Flow Situation
Prof. Xuesong Li Institute of Quantitative
Technical Economics Chinese Academy of Social
Sciences xsli_at_cass.org.cn Meeting of BRICS
Economic Research Group Organized by NIPFP, New
Delhi, Feb. 27, 2012
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Main Contents

• Chinas Balance of of Payments in 2011
• Trade surplus dropped to 2 of GDP in 2011
• The total bilateral trade value increased rapidly
  in emerging markets last year
• FDI in China increased 10 in 2011
• Outward direct investment increased 2 in 2011
• Accomplished turnover of Chinas foreign
  contracted projects increased 12 in 2011
• Fluctuations in cross-border capital flows
  intensified in China at the end of 2011
• China may face smaller but more volatile capital
  inflows

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Chinas Balance of of Payments in
2011(preliminary data) Unit A hundred million
US dollars, Source SAFE
Items Rows Q4, 2011 2011
1. Current account 1 598 2011
A. Goods and services 2 555 1884
a. Goods 3 709 2438
credits 4 5078 19036
debits 5 4369 16598
b. Services 6 -154 -554
credits 7 479 1826
debits 8 633 2381
B. Income 9 3 -142
C. Current transfers 10 40 269
2. Capital financial account 11 -474 1867
Among thatDirect investment 12 491 1705
3. International reserve assets 13 -124 -3878
3.1 Monetary gold 14 0 0
3.2 Special drawing rights 15 0 5
3.3 Reserve position in the IMF 16 -8 -34
3.4 International reserve assets 17 -117 -3848
3.5 Other creditors rights 18 0 0
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Trade surplus dropped to 2 of GDP in 2011

• According to the statistics by the Customs,
• Chinas imports and exports in 2011
  registered US3.6 trillion with a year on year
  increase of 22.
• Among that, exports amounted to US1.9
  trillion, up by 20 year on year
• Imports was US1.74 trillion, up by 25. The
  growth rate of imports was about 5 percentage
  points higher than that of exports.
• Trade surplus was US155 billion, a decrease
  of 15. It has declined in three consecutive
  years, and it amounted to 2 of GDP, dropped from
  3.1 of GDP in 2010, which was obviously within
  the internationally recognized rational zone of
  trade balance standard.

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The growth rate of foreign trade was high first
then dropped down last year

• For example, Chinas imports and exports in
  December registered US333 billion with a year on
  year increase of 13. The growth rate was 5
  percentage points lower than that of November.
• Among that, exports amounted to US175
  billion, up by 13, the growth rate dropped by
  0.4 percentage point
• Imports was US158 billion, up by 12, the
  growth rate dropped by 10 percentage points.

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The total bilateral trade value increased
rapidly in emerging markets last year

• In 2011, the total trade value of
  Sino-Europe, Sino-US and Sino-Japan were up by
  18, 16 and 15, 4, 6 and 7 percentage points
  lower than the overall growth rate respectively.
• The total bilateral trade value between China
  and ASEAN was up by 24, 2 percentage points
  higher than that of overall growth rate.
• The total bilateral trade value with China
  and Brazil, Russia and South Africa were up by
  35, 43 and 77, which were all higher than the
  overall growth rate.

7
FDI in China increased 10 in 2011

• In the whole year of 2011, the actualized FDI
  in China reached US116 billion, up by 10 over
  the previous year, hitting a new record once
  again.
• However, similar to the foreign trade, the
  growth rate of FDI in China was high first then
  dropped down last year. In December, the
  actualized FDI amounted to US12 billion, down by
  13 year on year.

8
The value and growth rate of actualized FDI in
service sector exceeded those in manufacturer
sector

• The actualized FDI in manufacturing sector
  registered US52 billion in 2011, up by 5 year
  on year, accounting for 45 of the national total
  amount in the same period.
• The actualized FDI in service sector amounted
  to US55 billion in the year, up by 21 year on
  year, accounting for 48 of the national total
  amount in the same period, higher than that in
  manufacturing sector for the first time.

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Asia is the major source of FDI in China, while
FDI from Europe and USA declined

• In 2011, the actualized investment from the
  ten countries or regions in Asia (Hong Kong,
  Macao, Taiwan, Japan, Philippines, Thailand,
  Malaysia, Singapore, Indonesia and South Korea)
  totaled US101 billion, up by 14 year on year.
• However, the actualized investment from the
  USA registered US3 billion, down by 26 year on
  year and the EU 27 countries, US6 billion, down
  by 4 year on year.

10
Outward direct investment increased 2 in 2011

• According to the statistics by MOFCOM, in
  2011, domestic Chinese investors had directly
  invested in 3391 overseas enterprises of 132
  countries and regions in non-financial sectors,
  accumulatively reaching US60 billion, up by 2
  year on year.
• By the end of 2011, domestic Chinese
  investors established 18 thousand outward
  investment enterprises in 178 countries and
  regions, amounting to US322 billion in
  non-financial sectors on an accumulative basis.

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ODI increased rapidly to Europe and Africa

• In 2011, outward direct investment to Europe
  and Africa registered US4.6 billion and US1.7
  billion, up by 57 and 59 year on year
  respectively.
• Among that, investment to the EU reached
  US4.3 billion, up by 94 year on year.

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Merger and acquisition was conducted in broader
areas

• In 2011, direct investment by merger and
  acquisition (MA) reached US22 billion,
  accounting for 37 of the total value of outward
  investment in the same period, in the fields such
  as mining, manufacturing, electricity generation
  and supply, transportation, wholesale and retail,
  etc.
• Sinochem Corporation purchased through its
  Hong Kong subsidiary the 40 stocks of Statoil
  ASAs Brazil Peregrino oil field at US3.07
  billion, which was the largest overseas
  acquisition project of Chinese enterprises in
  2011.

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There were an increasing number of
countries taking measures to restrict investment
from SOEs

• Talking about outward investment, a number of
  countries took new protection measures against
  foreign investors such as restrictions against
  investment from state-owned enterprises.
• UNCTAD has published a report that there were
  an increasing number of countries taking measures
  to restrict foreign investment, which had certain
  negative effects on Chinese enterprises "going
  global" strategy.
• Moreover, the unrest and regime change in
  Middle East and North Africa increased security
  risks of Chinese enterprises in outward
  investment, making enterprises relatively
  cautious in making investment decisions.

14
Accomplished turnover of Chinas
foreign contracted projects increased 12 in 2011

• In 2011, the accomplished turnover of Chinas
  foreign contracted projects reached US103
  billion, up by 12 year on year. The value of
  newly signed contracts registered US142 billion,
  up by about 6 year on year.
• By the end of 2011, for Chinas foreign
  contracted projects, the value of signed contract
  reached US842 billion on an accumulative basis,
  and accomplished turnover amounted to US539
  billion.

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Foreign labor service cooperation

• In 2011, all kinds of labor sent abroad by
  labor cooperation projects reached 452 thousand,
  41 thousand more than that in the previous year.
• By the end of 2011, all kinds of labor sent
  abroad by labor cooperation projects numbered 5.9
  million on an accumulative basis.

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Fluctuations in cross-border capital
flows intensified in China at the end of 2011

• The outflow of speculative funds, or hot
  money, from China marked an about-face of
  international capital, compared with a hot money
  inflow totaling 35 billion in 2010.
• China faced massive cross-border capital
  inflows in the first half of 2011, driven by
  expectations of a stronger Yuan and interest rate
  differences between China and other developed
  economies.
• But the inflow trend was interrupted in the
  second half of last year, particularly since the
  end of September 2011 amid the liquidity crunch
  in overseas markets and reversed expectations
  towards the Yuan in offshore markets.

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China may face smaller but more volatile capital
inflows

• Developed countries are unlikely to solve
  their structural problems in the short term, and
  due to the persistent turmoil in global financial
  markets, China faces the risk of frequent
  short-term cross-border capital flows, China may
  face smaller but more volatile capital inflows in
  the next few years. 
• Even though the Yuan has become more
  internationalized over the past years, the
  Chinese currency will remain a risky asset
  instead of a haven currency, adding foreign
  exchange regulatory departments should introduce
  more tools in the market to hedge against risks
  to prepare for more flexible exchange rates of
  the Yuan.

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Chinas international payments are gradually
moving toward balance

• In 2012, the European debt crisis and slow
  global economic recovery will have a negative
  impact on Chinas export growth. The trade
  surplus will narrow further and current account
  will move closer to balance.
• China will maintain stable and relatively
  rapid economic growth for a long time despite
  external shocks. International capital,
  especially long-term capital, is likely to
  continue to flow into China on a large scale. 
• Fundamental factors will continue to support
  a surplus of China's international balance of
  payment in 2012, but the surplus will fall
  sharply with greater volatility. Chinas
  international payments are gradually moving
  toward balance. 

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THANKS !