China to extend outbound strategy by riding the Belt and Road Initiative
CHINA’S recent introduction of stricter capital outflow controls has raised concerns around the prospects of the country’s outbound direct investment. We believe that there should be little impact in the long term and the Belt and Road Initiative will be a key catalyst to accelerate China’s outbound investment flows. Thailand stands to benefit from this.
While China’s decision of introducing more strict capital outflow limitations seems like an uncomfortable turning point, it appears targeted and likely short-term for the benefit of the wider economy. There are strong signals that Beijing is confident that their current approach will neither impede nor reverse China’s long-term overseas investment trend. President Xi Jinping has made it clear that China will continue to reach out to the world and invest in key sectors. In the next five years China expects to invest US$750 billion overseas and ODI will continue to play a key part in supporting the country’s economic transition.
Not only that, the Belt and Road Initiative will stimulate the next phase of China’s ODI. This far-reaching economic development plan which focuses on improving infrastructure and network connectivity covers more than half of the world’s population, and 29 per cent of world’s GDP across Asia, Europe and Africa. This will not only open up more markets for Chinese companies but facilitate deeper global trade, investment and capital flows as a result of improved connectivity.
China’s ODI continues to surge, with a 44.1 per cent year-on-year growth to $170.11 billion in 2016. The Belt and Road Initiative is bolstering cooperation between Chinese and foreign firms. Outbound investment to countries involved in the initiative totalled $14.53 billion in 2016.
After decades of overseas investments dominated by natural resource acquisitions of coal, oil and metals, the next step for China’s ODI is to develop intelligent manufacturing, build higher-value brands and improve its services. We have seen Chinese companies expanding into high value-added sectors such as advanced manufacturing, real estate, finance, agri-business and healthcare sectors in order to improve their competitiveness in the global market as well as meet growing domestic demand.
This is aligned with Thailand’s economic development as the government is putting strong efforts in boosting FDI in high tech areas. There are ten key industries such as next generation automotive, smart electronics, agriculture and biotechnology, food innovation, automation, robotics and healthcare.
We have already seen more Chinese investment into Thailand’s high-tech sector. For example, Chinese telecom equipment giant, Huawei Technologies opened its regional headquarters in Thailand in 2016. China Mobile, the world’s largest mobile phone company by subscribers bought an 18 per cent stake in Thailand’s True Corp in 2014. Chinese e-commerce giant, Alibaba Group recently signed a deal with the Thai government to support Thai Small and Medium Enterprises.
Currently, China’s Belt and Road Initiative is bringing in a new round of opportunities for the country’s outbound investment, particularly in infrastructure construction – building roads, railways, bridges and ports across Asia.
The Initiative may help secure the financial support needed from China-led policy banks including the Asian Infrastructure Investment Bank (AIIB), New Development Bank and the Silk Road Fund.
They have dedicated billions to support Belt and Road projects to upgrade Asia’s infrastructure and improve connectivity with other Asian countries. Financial institutions including Chinese and foreign commercial banks also have key roles to play in facilitating this financing.
At the centre of Southeast Asia, this strategic location will help Thailand anticipate more investment from China via the Belt and Road Initiative. In 2014, Thailand and China signed an MOU on railway cooperation and agreed on cost for the first phase of a high-speed railway project, worth Bt179 billion ($5.2 billion) as of December 2016 estimation. We are already seeing plans for a high-speed rail line running from southern China through Laos to Thailand’s industrial eastern coast; and the 7,000 kilometre Singapore-Kunming Rail Link.
China’s prospects of strong ODI growth remains sound. The country is continuing its steady integration with the global economy through a new phase of increased investment overseas, in particular as the Belt and Road Initiative picks up momentum. In the long term, China will be relied upon to be a leader in the next phase of globalisation to drive the world’s economic growth.
HELEN WONG, the author, is Chief Executive/Greater China, The Hongkong and Shanghai Banking Corporation Limited
