Outbound investment has great growth potential

BEIJING - As Chinese corporations flock to foreign soils to invest, some analysts cautioned that speedy expansion of the investment outflow could lead to the so-called "overheating" or "bubble" if not well managed.

However, with deepened globalization and China's ongoing economic transformation and structural reform, Chinese enterprises, especially the private sector, do have a huge space for outbound investment growth.

Big increment but small stock

The rapid growth in Chinese overseas investment has caught much global attention but can hardly cover its actually small stock. As the Economist magazine described, China is "a relative newcomer to big direct investments."

Chinese official data showed China's external direct investment hit a record of $87.8 billion in 2012, making it the third largest country in outbound FDI following the United States and Japan.

However, in terms of stock, the accumulated volume of Chinese overseas investment reached $531.94 billion, about one tenth of that of the United States, one third of Germany, and half of Japan.

British economist John Dunning theorized that a country's net foreign direct investment is related to its level of development -- the higher gross domestic product (GDP) per capita, the greater the scale of foreign direct investment.

Dunning argues that when a country's GDP per capita reaches between $2,500 and $4,750, it will see a considerable increase in outward FDI and a balance between outward and inward FDI when the GDP per capita exceeds $4,750.

China's GDP per capita exceeded $5,400 in 2011. According to Dunning's theory, the inflow and outflow of FDI will gradually balance in the future. But in fact, there is a great gap between the two.

UN statistics showed the inward FDI in China hit $121 billion in 2012, 38 percent higher than the outward FDI, while the stock of the inward FDI has exceeded $1.3 trillion, 2.5 times more than that of the outward FDI.

Therefore, there is a great space for the growth of China's outward FDI in the future.

In his opening speech at the Summer Davos Forum earlier this month in Dalian, a port city in northeast China, Chinese Premier Li Keqiang said China's external FDI is expected to reach $500 billion in the next five years.

Daniel Rosen, co-founder of the Rhodium Group, is more optimistic. "Its (China's) stock of external direct investments will rise from less than $500 billion today to $2.5-5 trillion, most likely, in the coming decade," he told Xinhua.