Which way does the Renminbi river flow, is it east or west? An analysis from US based heritage.org into China’s global foreign direct investment between 2005 and 2008 provides interesting reading.
We have long argued China’s FDI is determined by three issues, access to markets (ATM), access to technology (ATT) and access to resource (ATR). By far and way the greatest determinant is access to resource.
Consider that Australia is the largest single country destination for China’s direct investment according to heritage.org using data from a report first by Scissors *. Investment is valued at $34 billion and 15% of the total, according to the data.
This investment could be motivated by the market of some 23 million people (ATM) , or possible access to technology (ATT) represented by boomerang flight dynamics perhaps. Far more likely is access Australia’s thriving resources sector particularly minerals and petroleum. Australian coal, liquefied natural gas, iron ore, copper, diamonds, zinc and many other minerals provide the essential incentives for the FDI direction. In 2006–07, over 80 per cent of Australian output was exported, accounting for approximately 49 per cent of total goods and services exports.
Nigeria, Iran, Brazil, Kazakhstan, Canada, Indonesia, Algeria and Venezuela all rank above Britain in the foreign investment rankings. China invests almost twice as much in Nigeria as it does in the UK mainland. Unless copper deposits in Cornwall or zinc in the lakes are discovered, the UK will remain outside of the top ten destinations for Chinese investment.
China is the second largest economy in the world growing at 9% per annum. With a population of 1.3 billion it struggles into the world top 100 in GDP per capita parameter. With $3.2 trillion of reserves, it has the financial resource to lock up the finite resource of world commodities and continues to do so at a vast rate. Almosty eight per cent of investment is into the food, energy and metals sectors.
The challenge for the growing China economy is to secure resource. It is acquiring and developing the technology. It already has the market, the export growth model abandoned post 2008 in favour of domestic expansion. Europe and the West may yet pay for the occupation of Peking. The price is lower growth and higher inflation as demand for resources grows in the East at the expense of the West.
So which way does the Renminbi flow? The renminbi flows East, West, North and South but the resources flow back just one way. JKA 2011
Scissors Derek, 2011 China's Investment overseas in 2010 Heritage Foundation.
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The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines or reflect political bias. UK Economics news and analysis : no politics, no dogma, no polemics, just facts. JKA is a visiting professor at MMU Business School, an economist and specialist in Corporate Strategy, educated at LSE, London Business School with a PhD from Manchester Metropolitan University.