How do you measure the staggering growth of China’s outbound foreign direct investment (FDI) in recent years? Irish business website Finfacts collects measurements and recently published some definitive statistics:

  • For anyone who needs confirmation, China’s economy is now the world's second largest economy, holding foreign exchange reserves of US$2.5 trillion
  • China’s outbound non-financial direct investment was just $143 million in 2002. In 2009, non-financial FDI had grown to US$17.8 billion, which represented a 44% year-on-year increase
  • Investments were made in 111 countries and regions.

According to the Chinese Ministry of Commerce, in addition to capital, China brought technology, over 438,000 local jobs and US$10.6 billion of tax revenue to the overseas markets in which it operates. Chinese companies also made 298 acquisitions in 2009, a record number.

The website China Knowledge updated these statistics, reporting that in the first nine months of 2010 China's overseas direct investment in non-financial sectors increased 10.4% year on year to US$36.3 billion. The website quoted Zhang Xiaoqiang, deputy director of the National Development and Reform Commission. Including investments made in the first three quarters of this year, Chinese investors have invested in 2,246 overseas enterprises in 118 countries and regions.

Notwithstanding the prodigious opportunities that Chinese FDI presents, the United States continues to be highly selective in permitting inbound investment from China. Reports surfaced on November 6 that, under pressure from the U.S. Department of Defense, Sprint was forced to exclude Huawei Technologies and competitor ZTE Corporation from a multi-billion dollar contract to upgrade Sprint’s mobile network. Apparently – even though these companies would have been the lowest bidders – persistent concerns regarding their ties to the Chinese government led DoD to raise its objection based on China’s growing cybercapabilities. Neither Sprint nor the U.S. partner of the Chinese bidders could prevail. The blog Nexus 404 reports that DoD’s rationale was that the Chinese equipment might be a security vulnerability, potentially intercepting communications from within the U.S., but that ZTE and Huawei denied those allegations.

The blog Q1labs has a much more nuanced and probative view of Sprint’s action:

"For some time now, and certainly going forward, there is going to be an interesting tension between the need to leverage global trade for competitive advantage and the need to remain vigilant on how global business partnerships impact national security. Sprint’s exclusion of Huawei is an example of a policy decision, but I don’t think we can just continue to make policy decisions that impact competitive advantage. Either the list of suspected countries will become too overwhelming (and US trade will become more cautious than it is today), or we will take our eye off the ball when diplomatic relations with a country improves (are we now not worried about Libyan backed companies and contracts?) What we should be focusing on is how we improve our security intelligence so optimum security and competitive advantage can be maintained. The key to solving this very difficult problem is better security technology with better intelligence – including greater context and deeper visibility. Knowing that your telecom infrastructure is not from China (or whoever the suspect country is at that time) doesn’t mean that your network isn’t being manipulated."

Not all Chinese direct investments into the U.S. meet with the same fate. China Economic Daily reported on November 1 that Industrial & Commercial Bank of China (ICBC), China’s largest lender and the world’s most profitable bank, had entered the U.S. brokerage market. ICBC purchased clearing broker Prime Dealer Services, a U.S. broker-dealer business owned by Fortis Securities, from France’ BNP Paribas. BNP had purchased the business as part of its purchase of Fortis Bank of Belgium in 2009. The reported price was one dollar and the assumption of liabilities of the unit in an unspecified amount. The Wall Street Journal reported that under ICBC’s ownership Fortis Securities will begin clearing bond purchases and expand into the U.S. securities underwriting market. Prime Dealer Services currently has 75 existing customers and plans to expand its client base. ICBC is 70% owned by the Chinese government.

Bond trading – Si! Call forwarding – No! Go figure.