Transnational corporations from developing countries are redefining how money flows around the world and may, in time, be big enough to allow emerging nations to sustain one another without input from the developed world.
Global outflows of foreign direct investment (FDI) hit US$779 billion in 2005, according to the UN's World Investment Report. (Recorded inflows topped US$900 billion with the discrepancy attributed to different record keeping practices.)
Most of this money flows between developed countries or from developed to developing ones. The largest money magnet is still China, as multinationals rush to cash in on its fabled 1.3 billion customers.
Advances in Asia
But China is just the fastest growing economy in the fastest growing region in the world. "All of Southeast Asia is growing," said Hong Kong University Professor Richard Wong.
The world economy is seeing rising levels of FDI, powered partly by the rise of Asian economies and partly by the interest of multinationals in emerging markets.
The new players are multinationals from emerging nations, a group of corporations that are redefining the flows of money around the globe. This new group, which may be better able to tap into the needs of lower-income consumers in other emerging economies, represents the advance guard of FDI from developing nations.
The vast majority of them are still regional but some – like Mexico's Cemex, South Korea's Samsung or China's Lenovo – have global aspirations.
In 2005, 17% of the world's FDI originated in developing economies – US$133 billion from countries that are normally the recipients of the much larger pool of funds available in developed economies.
China placed 71st in the UN Conference on Trade Development's index of outward FDI performance. As the index measures the share of an economy's outward FDI as a ratio of its share of world GDP, the sheer size of China's economy skews its ranking. In 2001, China acquired some US$450 million worth of foreign assets. In 2005, the number was US$5 billion.
China's impact was represented much more profoundly through Hong Kong, which topped the list with a ratio of 9.97, far ahead of second-placed Norway on 5.80. As Chinese companies push their way onto the multinational space through large ticket acquisitions, they often do it through their Hong Kong-incorporated subsidiaries, as was the case with Lenevo's purchase of IBM's PC division in 2005.
The Hong Kong channel
China was not the only economy to evolve into a larger source of investment. Between 1990 and 2005, the number of developing and transitional economies with outward FDI of US$5 billion or more jumped from six to 25.
"The widening and deepening of this process is likely to continue," the World Investment Report notes. "This quantitative rise might lead to qualitative changes."
Many emerging nations already rely almost exclusively on other emerging nations for their cash inflows. More than half the inflows in Botswana, the Democratic Republic of Congo, Lesotho, Malawi and Swaziland originate in South Africa.
Developing economies are also the biggest recipients of FDI. Not surprisingly, China led Asia with US$72.4 billion. Inflows to Hong Kong also grew by 5.6% to US$35.9 billion. Meanwhile, Singapore received US$20.1 billion, South Korea US$7.2 billion and India US$6.6 billion.
The growth movement is not likely to slow down any time soon.
"I don't think we can make predictions," said Wong. "But having said that, the world economy is likely to remain in a situation of modest and sustained growth."