China’s trade surplus took a leap in 2007. According to the State Administration of Foreign Exchange, at the end of 2006, China’s foreign exchange reserve exceeded $1 trillion. In the year of 2007, the figure jumped by over $50 billion every month. By the end of September, the accumulated reserve primarily from trade surplus amounted to $1.43 trillion. At the same time, with the emergence of the global credit crunch at the second half of 2007, domestic macroeconomic imbalance, and shortage of raw materials, the government took active steps to hasten the pace in overseas investment.
The following are excerpts from a Voice of America report on December 30, 2007 [1].
"In the recent several years, China has constantly accelerated its pace in overseas investment. In 2005, China’s overseas investment was $12.3 billion, in 2006, $16.1 billion. As illustrated by statistics from the Wall Street Journal, China’s sovereign wealth fund together with state and private-owned companies has spent $29.2 billion on the purchase of overseas enterprises in 2007, while the amount spent for the purchase of China’s enterprises by all foreign regions was $21.5 billion.
Astounded at the overwhelming impetus of China’s economic expansion into foreign countries, Hong Kong-based Economic Weekly named the year 2007 as the first year of China’s capital outflow. With such pace of progress, said Economic Weekly, China’s overseas capital investment will be comparable to that of Japan within 10 years."
"China’s state-owned petroleum companies continued to purchase energy assets in mid-Asia, Middle East, and Africa through contracts of field exploration, pipeline construction, and refinement projects. The biggest deal was the $4.18 billion buyout of PetroKazakhstan Inc. by China National Petroleum Corporation (CNPC) from a Canadian multinational corporation in October 2007. China’s state-run media regarded the purchase as a breakthrough after a series of setbacks in previous unsuccessful attempts.
Manufacture leads China’s global expansion, accounting for 53.4 percent of the country’s total overseas investment. In early 2007, China’s telecommunication magnate China Mobile spent $284 million acquiring 90 percent of the stock shares of Pakistan mobile carrier Paktel out of a Swedish company. In August, the Shenyang-based Northern Heavy Industries Group successfully acquired and merged Germany’s Wandeor Holding Company and a French company NFM, becoming the controlling owner of the world’s top producers of Tunnel Boring Machine.
The most remarkable waves of overseas mergers and acquisitions (M&A) took place in the financial sector. In July, China Development Bank purchased 7.7 percent of the stock shares of U.K’s Barclays Bank. In October, Industrial and Commercial Bank of China acquired 20 percent of the shares of Standard Bank of South Africa at $42.3 billion, becoming the largest share holder of the largest lender in South Africa.
{mospagebreak}
At the same time, China Minsheng Banking bought 9.9 percent of San Francisco-based UCBH Holdings for nearly $300 million. CITIC Securities Corporation and the Wall Street investment bank Bear Stearns & Co. Inc. each invested $1 billion to each other and became a 50-50 joint venture.
"The newly released ‘World Investment Report’ published by the United Nations stated that China’s overseas investment last year (2006) constituted 2.7 percent of the total global overseas investment, ranking 13. Despite a small percentage, the rate of increase has been an annual average of 60 percent in the past four years. Moreover, the scale of single investment projects is growing sharply. In 2007, the five biggest overseas investments averaged $3.1 billion, while the size of foreign investment projects in China averaged $202 million."
The following are excerpts from another Voice of America report dated December 29, 2007 [2]
"China has long adopted a traditional and monotonous investment model for its foreign exchange reserve; that is, buying foreign government bonds which has low risk and low return. However, the model underwent a dramatic change since the second half of this year (2007). In March 2007, the preparation of China Investment Limited Corporation was initiated and the corporation was formally established in September. China’s media reported that China Investment Corp, under the State Council, has a registered capital of $200 billion. It is charged with the important task of investing the huge foreign exchange reserve at home and abroad."
"As an investment tool of the Chinese government, China Investment Limited Corporation, just like all other sovereign wealth funds, has received tremendous attention from the international finance circle and governments in western countries.
"David Lampton, director of China studies at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University, believed the investment activities by China Investment Limited Corporation can easily arouse alertness from western countries, due to its nature as a Chinese government agency.
"Because China’s foreign exchange reserve and the newly established China Investment Limited Corporation are controlled by the government, many of the investment activities would be considered to have strategic goals, in addition to commercial motivation. The Chinese government has to deal with the capital meticulously. Whenever the capital is invested in sensitive projects, it would inevitably stir up controversies from the international society."
Endnotes:
[1] Voice of America, December 30, 2007
http://www.voanews.com/chinese/w2007-12-30-voa43.cfm?rss=economy percent20and percent20finance
[2] Voice of America, December 29, 2007
http://www.voanews.com/chinese/w2007-12-29-voa28.cfm?rss=economy percent20and percent20finance