China's reemergence as a global economic superpower during the end of the 20th and into the early 21st century was marked by a long list of firsts, milestones and eye-popping statistics.
The 1990-2014 period saw China become the largest manufacturing and export country in the world. China gained admittance to the WTO, became a host of the Olympics and saw its cities become some of the largest in the world. Its economy boomed, and it became the largest consumer market. A Chinese company became the world's biggest e-commerce player. Its auto market surpassed all others in growth. Finally, its crowning achievement was becoming the world's second largest economy.
Many policies, events and factors combined to make all of this possible, including the government's long-term planning and willingness to experiment, the entrepreneurial passion of the people and the opening up to world markets. In turn, the world embraced China. Privatization and the modernization of old businesses and an emergent middle class resulting from massive job growth and urbanization, also contributed to the phenomenon of China's growth.
However, one of the key foundations for all of this success was foreign direct investment, or inbound investment into China. No amount of policy changes, entrepreneurial spirit, technological development or urbanization could count for anything unless the money to build new businesses and industries and to institute new policies was not made available.
Thirty years ago, the West had the money, the banks, the companies, the experience and the desire to invest abroad, and a great deal of this investment went to China. Companies from regions and countries such as Hong Kong, Taiwan, Singapore, the United States and Europe invested in making the Chinese mainland the workshop and marketplace of the world. Eventually, they invested in providing Chinese citizens with the products and services they needed and desired. The West also had the wealth and the insatiable appetite for goods and products that made the investments in China pay off in affordable products for import, which allowed the government, businesses and individuals in China to profit.
In 2015, the roles have been, in many ways, reversed. China has the economy, the money, the banks, the foreign reserves, the companies and the individuals who are ready, willing and able to invest outside of China.
Net cash exporter
For most of the last 30 years China has been a net cash and investment importer, a natural role for a developing economy. What has separated China from other net cash importers is how its people have used those investments to grow and prosper for the long term.
During this period, outbound investment started as an experimental afterthought but has now become a primary driver for future growth.
In 2002 China invested about $2.7 billion on acquisitions and new projects overseas. In 2013 the total had increased to $108 billion. In 2014, China's outbound investment reached $116 billion. If Chinese firms' investment through third-party financing is included, the total investment would amount to $140 billion. In 2015 I expect that to increase to between $180-$250 billion.
The major factors that will spur record outbound investment and make China a larger net exporter of investment include a natural and healthy adjustment in the mainland economy making overseas investments, an attractive--and needed--part of China's growth; government, corporate, bank, private equity and private wealth interests seeking high growth opportunities; the desire of foreign governments, companies and property holders for Chinese-led investment; and the growing wealth of all Chinese individuals.
Outbound investment from China can be divided into three categories: government- or bank-led; corporate-, private equity (PE)-, or venture capital (VC)-led; and private- or individual-led.
The Chinese Government has more than $4 trillion in government-administered foreign reserves. It will continue to put this money to good use in a number of ways.
It will continue developing strong relationships in Africa and Latin America through investment in local economies and infrastructure as well as the development and purchase of much needed natural resources. Smart governments will continue to engage China and learn how to create mutually beneficial partnerships.