Regional News
China’s growing investment portfolio, now the world’s fourth largest, is shifting focus away from the advanced countries and toward the developing countries, notably in Africa, the Mid- dle East and Latin America. As the coffers of the People’s Republic expand, along with those of other Chinese- satellite economies, these investment decisions could have a profound impact on the evolving global economy.
Just read the press: China’s megabank, ICBC, the world’s largest lender, recently announced a major expansion in Dubai, in part to take aim at Mideast and African markets. It is looking to set up lending throughout Bahrain, Saudi Arabia and Qatar–despite unrest there. Its profits in the region rose over 100% in the first half of the year. A Chinese national oil company has targeted Sudan for development.
In South America, meantime, JAC Motors, a major Chinese manufacturer, said it would build a factory in Brazil, while several large companies–including ICBC, Chery Motors, Heilongjiang Beidahuang Nongken Group–have expanded recently in Argentina.
China’s overseas investment overall grew from $53 billion in 2005 to $224 billion in 2009, the latest comprehensive data. Increasingly this investment was headed toward countries outside the traditional regions of Chinese economic influence such as Southeast Asia. Four of the five fastest-growing areas for large-scale investments–South Africa, Canada, Nigeria and Australia–are all major commodity exporters. Investment flows from other Sinosphere countries such as Taiwan show a markedly similar pattern.
Not since the expeditions of the legendary eunuch Admiral Zheng He in the early 15th century has the Sinosphere’s influence been so widely felt. Zheng He’s ships extended the Middle Kingdom’s influence well beyond Southeast Asia to the Indian Ocean and East Africa. Now, for the first time since then, China’s sphere of influence extends to these areas and beyond.
The reasons for this shift in investments have everything to do with China’s need for resources. In the period from 2005-09 China’s investments grew more rapidly in resource-rich regions–notably the Middle East, South America and Africa–than in its traditional markets such as the U.S., Japan or the European Union. Equally important, the developing countries–many of them growing more quickly than their more established counterparts–are widely seen as the most lucrative future markets for Chinese goods.
This phenomenon may be best seen in the rapid growth of Chinese government grants as well as the provision of interest-free and concessional bank loans, such as those provided by the state Exim Bank, primarily to Chinese companies seeking to invest in developing nations, especially in Africa. The accompanying map (and others) captures this effect both in 2009, when $82 billion was spent on trade support, and over the past decade.
PRC financial backing for companies and projects in countries such as Angola, India, Equatorial Guinea, Turkey, Egypt, the Democratic Republic of Congo and Algeria have grown over 100 times since 2005. Other key developing countries such as South Africa, Ethiopia, Somalia and Ghana all saw in- creases of tenfold or more. Longer-standing recipients include Iran and Sudan. Libya is a newly problematic situation for China. (It’s worth noting that old rivalries needn’t get in the way of the Sinospheric express: Some of China’s electricity giants–SEPCO, Dongfang, Harbin–are targeting India’s power- generation market, aided by low-interest Chinese bank loans upward of $50 billion.)
Ultimately we can expect China’s increasingly competitive industrial sector to shift production to these countries. This is partially due to the fact that many developing nations now have more youthful workforces and lower labor costs than China. Wages for manufacturing workers in countries like Bangladesh, Vietnam and Myanmar are less than half of those in eastern China. In this the Chinese would be following the footsteps of the Americans, Europeans, Japanese and Koreans.
These developments presage the evolution of a Chinese- centered economy that has grown well beyond its role as low-cost producer and could well dominate the flow of global capital in the coming decades. Anyone impressed with China’s growing economic clout may well have seen nothing yet.
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By: Joel Kotkin and Sim Hee Juat
Source: Forbes Magazine, October 30, 2011
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