ODI set to overtake FDI 'within 3 years'

China Daily, May 6, 2011

With an annual growth rate of "20 to 30 percent", outbound direct investment (ODI) will overtake foreign direct investment (FDI) "within three years", a senior Ministry of Commerce official said.

The United States, the European Union and Latin America are set to see "a rapid" increase in ODI from China, Zheng Chao, commercial counselor at the Department of Outward Investment and Economic Cooperation at the ministry, told China Daily.

"Outbound direct investment is set for the fast track and will grow by between 20 to 30 percent in the next five years," Zheng said.

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 $1 trillion and $2 trillion worldwide by 2020.

ODI in the non-financial sector had reached $258.8 billion by the end of 2010, compared to $1.05 trillion for the total FDI figure over the last three decades, according to the ministry.

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 percent in 2009 thanks to the world financial crisis. But China's ODI in the non-financial sector increased by 6.5 percent to $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 percent to $59 billion, a momentum that is predicted to continue.

"The transformation of China's economic development mode makes a pressing for companies to go overseas, either for technology or sales," Zheng said.

"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.

"FDI has helped Chinese companies sharpen their competitive edge, making them better equipped to go overseas," said Lu Jinyong, director of the China Research Center for FDI at the University of International Business and Economics.