After years of talk and a little action, Chinese outbound investment sprung to life last year and is tipped to be a major theme of 2008.
Insurers, banks and securities firms were allowed to buy foreign equities through the Qualified Domestic Institutional Investor (QDII) program. A sovereign wealth fund, China Investment Corp (CIC), was set up to generate better returns on a chunk of the country’s foreign exchange reserves. And corporate China began eyeing overseas assets.
A number of landmark deals saw CIC buy a stake in private equity group Blackstone, China Development Bank (CDB) invest in UK-based Barclays Bank, and CITIC Securities and US investment bank Bear Stearns go into partnership.
“That to me was the big signal,” Tim Condon, head of Asia financial markets research for ING, said of the CITIC-Bear deal. “It’s not so much about Bear Stearns having access to China as CITIC having access to the US.”
There is a macroeconomic theory behind China’s outbound investment – it drains liquidity from the financial system, easing pressure on both the renminbi and domestic asset prices – but this is more a function of QDII.
For Chinese corporations, overseas expansion is about individual strategy and nurturing wider sources of revenue. Backed by strong capital reserves, financial institutions and commodities firms are expected to retain their momentum and be the prime movers in 2008.
“It’s inevitable that we will see more of this,” said Jonathan Anderson, chief Asia economist for investment bank UBS. “It is all part of China becoming a bigger player in the global economy.”