Tuesday, November 17, 2015

CHINA BELT AND ROAD INITIATIVE

Belt and Road Initiative Spurs China's Outward Investment Programme


China is now the world’s third largest source of foreign direct investment (FDI). In recent years, the Chinese government has substantially relaxed the relevant administrative measures for dealing with overseas investments and introduced the Belt and Road development strategy in order to strengthen economic cooperation with the regions concerned. In light of this, China's level of outward investment will further expand, while its investment in countries along the Belt and Road is expected to show sustained growth.
Hong Kong is the preferred services platform for China’s outward investment activities and has provided a full range of professional services for mainland enterprises looking to invest abroad. In particular, it has specialised in providing assistance in the areas of finance, law, tax, the risk assessment of sustainable operations, and international testing and certification, among others. As the mainland accelerates the pace of its “going out” activities and advances the Belt and Road initiative, more business opportunities will inevitably become available to services practitioners in Hong Kong.
Photo: Hong Kong is the preferred services platform for China’s outward investment.
Hong Kong is the preferred services platform for China's outward investment.
Photo: Hong Kong is the preferred services platform for China’s outward investment.
Hong Kong is the preferred services platform for China's outward investment.
Photo: HK provides a full range of professional services for Chinese enterprises to invest abroad.
Hong Kong provides a full range of professional services for Chinese enterprises looking to invest abroad.
Photo: HK provides a full range of professional services for Chinese enterprises to invest abroad.
Hong Kong provides a full range of professional services for Chinese enterprises looking to invest abroad.

Outward Investment on a Steady Rise
China’s overseas investment activities have continued to grow in recent years, making the country one of the leading sources of global FDI. According to the latest figures from the United Nations Conference on Trade and Development (UNCTAD), China’s total outward FDI rose from about US$101 billion (US$107.8 billion, according to China) in 2013 to an estimated US$116 billion [1] in 2014 (US$123.1 billion, according to China), placing it behind only the US and Hong Kong [2]. This has made China the world’s third-largest source of FDI for three consecutive years, starting from 2012.
Chart: China’s Outward FDI Flows
Chart: China’s Outward FDI Flows

In recent years, China has substantially relaxed its outbound investment management procedures and actively built platforms to help more businesses in order to “go out” and cooperate with foreign partners to transform and upgrade themselves. In particular, the resolution  adopted by the Third Plenary Session of the 18th CPC Central Committee at the end of 2013 proposed that, in order to meet the needs of economic globalisation, China should continue opening up both internally and externally and combine the strategies of “going out” to invest overseas with “bringing in” the advantages of foreign partners to achieve the most effective allocation of international and domestic resources.

The National Development and Reform Commission (NDRC) subsequently issued the Administrative Measures for the Approval and Record Filing of Outbound Investment Projects. This greatly narrows the scope of investment requiring the approval of the departments concerned. As of May 2014, general outbound investment projects with an investment level of less than US$1 billion only require filing in terms of a record being kept. At the end of 2014, the NDRC announced the scrapping of approval for general outbound investment projects with an investment of more than US$1 billion (except for projects involving sensitive countries, regions and sectors) [4]. Since then, record filing has replaced approval for all general outbound investment projects, unless those involve sensitive countries, regions or sectors.

Belt and Road: A Long-term strategy and a Boost to Investments
China is now promoting the Belt and Road initiative, an external development strategy centring on the Silk Road Economic Belt and the 21st Century Maritime Silk Road. In March 2015, China issued Vision and Actions on Jointly Building the Silk Road Economic Belt and the 21st Century Maritime Silk Road (Vision and Actions). This proposed the acceleration of the Belt and Road Initiative in order to encourage countries along the routes to achieve economic policy coordination, promote the orderly and free flow of economic factors and undertake a more efficient allocation of resources and a deeper integration of the relevant markets. The ultimate aim is to create an open, inclusive and balanced regional economic cooperation architecture that is of benefit to all parties concerned.
Picture: China’s FDI outflow to countries along the Belt and Road has increased rapidly
China’s FDI outflow to countries along the Belt and Road has increased rapidly in recent years.
Picture: China’s FDI outflow to countries along the BeltandRoad has increased rapidly
China’s FDI outflow to countries along the Belt and Road has increased rapidly in recent years.

The Vision and Actions
document stresses that investment and trade cooperation are the key requirements for building the Belt and Road. In line with this, China hopes to work with the countries along the Belt and Road to improve bilateral investment and trade facilitation, and to remove any investment and trade barriers. The purpose is to create a sound business environment within the region and in all of the relevant countries. Hence, considerable emphasis will be placed on pushing forward negotiations with regard to bilateral investment protection and double taxation avoidance agreements in order to protect the lawful rights and interests of investors, while expanding mutual investment areas.

Notably, China’s FDI outflow to countries along the Belt and Road has increased rapidly in recent years. Such outflows rise from about US$400 million in 2004 to US$13.66 billion in 2014, growing at an average annual rate of approximately 43% in the period. This pace of growth is far higher than the average annual growth rate of 36% enjoyed by China’s overall outward FDI flows during the same period. The share received by the Belt and Road countries as part of China's total outward FDI flows also increased from about 7% in 2004 to 11.1% in 2014.

According to the figures published by the Ministry of Commerce (MOFCOM), Chinese enterprises made direct investments totalling US$12.03 billion in 48 countries along the Belt and Road between January and September 2015, up 66.2% from the same period last year. The key destinations for China’s FDI outflows were Singapore, Kazakhstan, Laos, Indonesia and Russia.
Table: China’s FDI Flows to Belt and Road Countries and Regions.
Table: China’s FDI Flows to Belt and Road Countries and Regions.
Table: China’s FDI Flows to Belt and Road Countries and Regions.
Table: China’s FDI Flows to Belt and Road Countries and Regions.

China’s implementation of the Belt and Road strategy is expected to further boost outbound investment by many mainland enterprises in the countries along the Belt and Road. China has also indicated that it will adopt a more proactive opening up strategy, giving full scope to the comparative advantages of different regions, including the Pearl River Delta (PRD), the Yangtze River Delta (YRD) and the Bohai Rim area. All such regions will be granted a greater degree of economic openness as well as enhanced economic strength in order to promote the building of the Belt and Road and comprehensively raise the level of China’s open economy. China's outbound investment, including that destined for countries along the Belt and Road, is expected to further expand in the future in line with this scenario. In line with the Vision and Actions agenda, the major investment projects in the countries along the Belt and Road are likely to focus on the following areas:
  • Infrastructure construction, including facilities relating to roads, shipping, aviation, energy and communications.
  • Agriculture, forestry, animal husbandry and fisheries, including the production and processing of related products.
  • Oil, gas, energy and metal ores, including cooperation in exploring and developing traditional and new energy resources.
  • Emerging industries, such as new-generation information technology, biotechnology and new materials.
  • Cooperation in science and technology, including establishing joint laboratories and carrying out technology transfers and maritime cooperation.
Photo: Chinese enterprises are most interested in going to Hong Kong to seek their desired services.
Chinese enterprises are most interested in going to Hong Kong to seek their desired services.
Photo: Chinese enterprises are most interested in going to Hong Kong to seek their desired services.
Chinese enterprises are most interested in going to Hong Kong to seek their desired services.
Photo: Hong Kong is the main channel for China’s FDI outflows.
Hong Kong is the main channel for China’s FDI outflows.
Photo: Hong Kong is the main channel for China’s FDI outflows.
Hong Kong is the main channel for China’s FDI outflows.

Opportunities for Hong Kong Companies

Over the years, service practitioners in Hong Kong have helped countless mainland enterprises handle their trading and investment businesses both in Hong Kong and in many overseas markets. With its inherent advantages when it comes to supporting mainland enterprises in their overseas investments, such as its free flow of capital, abundant international information resources and world-class professional services, Hong Kong is the preferred services platform for many mainland enterprises when they look to undertaking overseas ventures. Its professional services cover all aspects of such endeavours, including finance, law, tax, the risk assessment of sustainable operations, and international testing and certification.
Hong Kong is the main channel for China’s FDI outflows. In 2014, the amount of China's outward FDI carried through Hong Kong amounted to US$70.9 billion - or 57.6% of the mainland's total outward FDI flow. In terms of cumulative investment up until the end of 2014, the total amount of outward FDI from the mainland carried via Hong Kong was US$509.9 billion, accounting for 57.8% of the total cumulative investment as at end-2014.
According to surveys undertaken by HKTDC Research in the PRD, the YRD and the Bohai Rim between 2013 and 2015, most local enterprises intend to adopt the "going out" development strategy, as well as "bringing in" the advantages of foreign partners in order to develop both their domestic and overseas markets. In order to facilitate this, mainland enterprises need the support of wide-ranging professional services.
It is worth noting that more than half of the enterprises surveyed express a keen interest in using Hong Kong to find the services they need or to help identify suitable overseas partners. Indeed, some 65% of the surveyed enterprises in the PRD, 56% in the YRD and 60% in the Bohai Rim rate Hong Kong as the preferred service platform for “going out”. As the mainland accelerates its pace of “going out” and “bringing in” and advances its Belt and Road initiative, more business opportunities will inevitably become available to service practitioners in Hong Kong.

[Remarks: For more information on China’s outward FDI and the details of the HKTDC research findings, please see the HKTDC research report: Outbound Investment of Chinese Enterprises: Hong Kong the First Port of Call for Professional Services]


[1]  Source: World Investment Report 2015, UNCTAD
[2]  Hong Kong is the leading destination for the mainland’s FDI outflow, as well as the largest source of FDI for the mainland.
[3]  The 18th CPC Central Committee adopted at its Third Plenary Session on 12 November 2013 the "Decision of the CPC Central Committee on Major Issues Concerning Comprehensively Deepening Reforms".
[4]  NDRC Decree No. 20: "Decision of NDRC on Amending the Relevant Clauses of the Administrative Measures for the Approval and Record-Filing of Outbound Investment Projects and Administrative Measures for the Approval and Record-Filing of Foreign Investment Projects". (27 December 2014)
- See more at: http://economists-pick-research.hktdc.com/business-news/article/Research-Articles/Belt-and-Road-Initiative-Spurs-China-s-Outward-Investment-Programme/rp/en/1/1X32LK39/1X0A48NP.htm?DCSext.dept=12&WT.mc_id=6128452#sthash.FGrLGCNU.dpuf