Chinese investment may or may not be welcome around the world, but it is definitely providing a vast amount of capital. Political rhetoric aside, this very high level of investment does make a difference to the global economy. So when China suddenly starts repositioning its money, finding out why might be a good idea.
There are multiple possible reasons for China’s various moves:
• Clear emphasis on investment in Asia and Central Asia: The Belt and Road initiative is a very big money proposition. The new Silk Road, as its name, requires massive infrastructure and development of assets.
• Investments in Western economies may or may not appeal to China: In Australia, for example, the Chinese put a lot of money into the big local housing boom, which has since turned into an ongoing price decline. Various caveats on foreign investment haven’t helped either.
• Some laws against foreign investment around the world haven’t exactly impressed the Chinese. Although these laws are largely protectionist, not unlike some Chinese foreign investment laws, they could hardly be said to be an incentive to investment.
• The trade war with the United States over tariffs doesn’t necessarily impact investment at all, but it’s hardly likely to stimulate investment, either. It’s more than likely the Chinese money has decided to diversify and stay out of the war zone.
• Chinese investment capital typically moves very rapidly. In the stock markets of the world, Chinese money will reposition almost instantly. In some cases, Chinese money may leave a foreign market to take advantage of better prices at home, for example.
• Sovereign wealth investments (direct investment by government entities) are also subject to policy changes and directions. If this very large amount of capital is being repurposed, it would do a lot to explain the sudden shift in investment strategies.
• Chinese policies regarding foreign investment, notably in the European Union, have been subject to severe criticism. Although Chinese investment policies are routinely tweaked according to government moves, they are very familiar to foreign investors in China. Exactly what has happened to provoke the European Union response isn’t clear, but it may lead to a cooling of investment by the Chinese, either by way of retaliation or loss of Chinese investor interest in the European market.
• Recent estimates of Chinese economic growth, projected to be about 6%, caused a wave of dismay around the world. For some reason or other, this growth figure, which is much higher than the rest of the world, was taken as a sign that the Chinese economy was shrinking. If the Chinese economy is shrinking, why is the world so upset about reduced Chinese investment? How many Christmases does the market expect?
(There is a notorious example of “predictions” about the Chinese economy. The manufacturing index, a.k.a. the PMI, is regularly said to be declining in financial analyses. For at least the last six years, to my knowledge, this index has been used as the primary excuse for declines in stock markets. What’s interesting is that the index has never been right. Every single time this prediction is made, without fail, the Chinese manufacturing orders data exceeds market expectations. You can see why market predictions are hardly a basis for any kind of judgement regarding Chinese investment.)
Also helpfully undermining the general perspective on declining Chinese investment, Chinese purchases of resources and materials are booming. The iron ore price, for example, has been rattling along majestically to much higher prices in recent months.
A reduction in ongoing investment is one thing. That sort of decline in investment would be backed up by sales of assets, et cetera. A reduction in new investment, however, may simply mean that the Chinese have found better things in which to invest.
If Australia is any guide, new investment is moving into health care and biotech, rather than the more conventional mining and property markets. This investment is largely being made by private corporate investors, which in turn means a very broad spread of possible investment avenues. It also means that the investment numbers may not be properly evaluated, simply because this range of investments is so widely spread.
“Inscrutable Chinese” investment? Not very likely
As a long-time reader of Chinese history, I have always thought that the idiotic expression “inscrutable Chinese” simply meant that nobody was paying attention. Chinese economic moves have always had some sort of practical rationale. Since the emergence of China as an economic superpower in the last 20 years, you would think people would have known that. You would also think these people would go looking for answers, rather than expecting the Chinese to provide answers.
China is a “command economy”. That means the government provides primary directions for economic activity of all types. The modern Chinese economy is actually a mix of a command economy and a very strong private economy, which further diversifies its strategies. China is actually looking much more like the United States in its heyday, investing far and wide, with varying results.
The mere fact that Chinese investment money has gone elsewhere looks to me more like diversification than an actual reduction in investment. It might be an idea if some of the market geniuses started looking at overall investment numbers, and not merely continuing investment in mainstream markets.
It should also be remembered that high capital investment in non-traditional markets, like technology, intellectual property, and other more complex markets is very likely. These are True Very Big Money markets, and they seem to be off the radar for investment analysis?
The usual story is that whatever is said about the Chinese economy, the exact opposite seems to be true. Wait patiently for an instant contradiction of this not very impressive analysis of Chinese investment.
