by John Galt
July 6, 2012 05:30 ET
Just when the bullmorons on Wall Street thought the all clear could be sounded, this report from the Chinese business website, MorningWhistle.com warns of a disturbing piece of news that should shake liquidity dependent markets throughout the West, especially the U.S.:
July 6, 11:37 am | By Jialin Tang
Crazy Chinese overseas investment is cooling down.
According to theWorld Investment Report 2012 released on Thursday by United Nations Conference onTrade and Development, FDI inflows to China reached a historically high level of $124 billion in 2011, thus China maintaining the second largest recipient after the U.S.
However on the other side FDI outflows from China unexpectedly dropped by 5.4 per cent to $65 billion. It’s worth mentioning that this is the first time a decline occurs since 2003.
James X. Zhan, director of Investment and Enterprise Division of United Nations Conference onTrade and Development made a conservative prediction on China’s overseas investment in the second half saying that the outflow is not expected to see a big growth in the following short period.
“This decline is not expected under a government policy which encourages enterprises to go out. The consequence is particularly worthy of attention and consideration.” Said Zhan.
The cooling down of outward FDI is mainly attributed to instability of investment destinations which basically concentrate in regions where wars, terrorist attacks and religious conflicts frequently take place.Serious instability has resulted in greater risk to the yields of overseas investment.
Debit crisis in European countries as well has made Chinese enterprises hesitate and wait confronting increased uncertainties of world economy.
Meanwhile, the rise of investment protectionism is another important factor to obstruct Chinese enterprises to go out. Some emerging economies, for example Latin America have showed a wariness towards Chinese state-owned enterprises especially in some sensitive fields such as mining, land acquisition,etc. Access to certain areas sees further control and restrictions by local government.
The one phrase “not expected” sounds like a quote from the CNBCFEDMSNBCCNNFBNBBGABCCBSNBCNYTWAPO playbook! How the hell could anyone NOT expect a slowdown based on the conditions of the European and U.S. economy? This is a major warning sign for American investors but as usual, hopium will surpass reality so buy some more AAPL and your life will be just sweet for years to come.
The article above is followed up by a more direct warning from the People’s Daily, the official organ of the Chinese Communist Party this morning also:
Updated: 2012-07-06 02:07
By Li Jiabao in Beijing and Zhang Haizhou in London (China Daily)
External conditions for Chinese outbound direct investment will become more difficult, making it unlikely such investment will increase greatly in the second half of the year, an official from the United Nations Conference on Trade and Development said on Thursday.
“Chinese outward investment will not increase sharply in the second half unless the global economy deteriorates sharply — unless, for example, the European debt crisis worsens severely and brings greater investment opportunities to Chinese companies,” said Zhan Xiaoning, director of UNCTAD’s investment and enterprise division.
The amount of foreign direct investment coming from China declined by 5 percent to $65.1 billion in 2011, the first such decline seen since 2003. In consequence, the country fell to ninth place in a ranking of countries that make the most such investments, according to the World Investment Report 2012, which the United Nations Conference on Trade and Development, or UNCTAD, released on Thursday.
“Despite the unexpected decline, China’s ODI is in the midst of a period of quick development,” Zhan said.
Zhang Jianping, a researcher from the Institute for International Economic Research affiliated to the National Development and Reform Commission, agreed that the pace of China’s outbound direct investment will continue to accelerate in the long run as a result of the country’s huge foreign exchange reserves and the global reach of its developed industries.
The first five months of the year saw the amount of China’s non-financial ODI increase by 40.2 percent year-on-year to $28.52 billion, according to the Ministry of Commerce.
“An increase in investment protectionism may be responsible for the decline seen in the amount of foreign direct investment coming from China,” Zhan said. “China is having to deal these more difficult investment conditions overseas because markets have become more difficult to access and there is more protectionism.
“Chinese companies, especially State-owned enterprises, are seeing more risks and obstacles as they enter international markets,” said Shi Ziming, deputy head of the ministry’s department of outward investment and economic cooperation.
“Some countries have been subjecting foreign investments to stricter investigation while some developing economies have had unstable policies, placing Chinese companies under more investment risks. In addition, the financial crisis and the spreading European debt crisis have reduced the demand coming from international markets but led to more investment protectionism and placed even more external pressure on Chinese companies,” Shi said.
Zhan said the changes in large economies’ investment policies have complicated matter for Chinese companies.
“Before 2003, more than 95 percent of the policy adjustments made in the world were meant to accommodate trade and investment,” Zhan said. “In the first half of this year, though, about 27 percent of the policy adjustments made were done to place foreign investments under stricter regulation.
“Although the US market is generally open to foreign investors, the US government is wary of China’s State-owned enterprises and investment in the US from China is increasing at a slower pace than that from Latin America.
“Countries are now adjusting their industrial policies … Chinese companies should evaluate these policy changes to avoid possible losses.”
It is never a crisis until it is one. Hint.