Inbound investment booms in China as global uncertainty increases
CGTN

Inbound investment sprees in China as the COVID-19 pandemic weighs on global uncertainty, research firm Rhodium Group says in an online report

The firm dived into data, which tells an opposite story from people's conventional perspective. Unlike in the 2008 financial crisis, there are no signs of Chinese capital rushing out to buy overseas equity of which values have been depressed by the COVID-19 pandemic. Instead more foreign firms are buying into China, including deals in the more sensitive industries of finance and technology.

"Over the past 18 months, we have recorded levels of foreign M&A (mergers and acquisitions) into China that were not seen in the previous decade," the firm's partner Thilo Hanemann and founding partner Daniel Rosen noted in the report.

"Most of that activity has been driven by American and European firms taking advantage of looser foreign ownership limits or betting on Chinese consumer demand," the report read.

Contributors to surging Chinese inbound investment

One factor favorable for foreign investors is the continuous efforts by China to open up its financial sector. Over the past years, the Chinese government has gradually increased the number of industries in which foreign businesses can operate, and has also removed foreign ownership caps for banks, financial assets management, brokerage, futures and insurers. 

In May, Volkswagen pumped 2 billion euros in two Chinese NEV firms. The German auto giant is taking control of its joint venture with Anhui Jianghuai Automotive for 1.1 billion U.S. dollars, marking the first case of mixed ownership reform of state-owned car enterprises in China, which involves foreign capital. It is also buying a 26-percent stake in Chinese battery maker Guoxuan High-Tech for 1.2 billion U.S. dollars.

Additionally, many foreign financial institutions in particular are buying up majority stakes in their Chinese joint ventures and applying for licenses to manage more local money, such as Morgan Stanley and Goldman Sachs, who have received regulatory approval in March to buy majority stakes in their joint ventures in China. 

The Rhodium report pointed out that another factor behind the investment trend is that, in some industries, Chinese businesses have now become leaders – partly through the rise of start-ups and government policy support. 

"For the first time, therefore, it is attractive for foreigners to buy technology and industrial assets rather than build from scratch," the report noted. 

Non-stop opening-up despite external tensions

Since the U.S. began stepping up pressure on China with tariffs about two years ago, the political campaign has spread to technology and finance. Despite an increasingly tense geopolitical environment, business interest of foreign investors in China is rising. 

The COVID-19 pandemic is dragging down the world economy to the worst situation since the Great Depression. Both largest economies contracted in the first quarter. China's economy is fighting to recover with the outbreak being under control, while many economists expect the U.S. GDP will fall by more than 40 percent in the second quarter.

Amid the economic and geopolitical pressures, Chinese companies are investing less overseas, according to data disclosed by China's Ministry of Commerce. But foreign investment rose 7.5 percent in May to 68.63 billion yuan (9.87 billion U.S. dollars) year on year. 

China's top regulators emphasized at the high-level Lujiazui Forum financial conference in Shanghai last week that the country will keep opening up its local market to the world

Yi Huiman, chairman of China Securities Regulatory Commission (CSRC) said: "Openness is a hallmark of a modern economy and a mature financial market. It is a prerequisite for building a global financial center. The CSRC will continue to uphold its commitment to openness and cooperation."

(Cover via CFP)