Revising China’s reported outbound FDI flows downwards: BBVA

HONG KONG - China’s share of global ODI stocks may be larger than previously thought if  Hong Kong’s role as an offshore centre is factored in, according to a research report from BBVA. “That said,” the report says, “our estimates show that MOFCOM figures overstate ODI flows, raising questions regarding the country’s status as a net creditor.”

Geographically speaking, BBVA says, ODI flows have been going to developed markets in North America and Europe, although Asia continues to account for most of China’s investments overseas.

Growth of ODI could slow where the main drivers, including access to technology, RMB depreciation and geopolitical considerations, stumble into difficulties.

“Chinese investments overseas are soaring but questions remain,” BBVA says.

“While China remains one of the world’s most important recipients of foreign direct investment (FDI), these volumes have been overshadowed by rapidly increasing outbound foreign direct investment (ODI) flows.

“According to the Ministry of Commerce (MOFCOM), in 2015, financial and non-financial ODI reached $146 billion, exceeding inbound FDI, which reached $126 billion, for the first time in China’s modern history.

“What’s more, the trend is set to continue into 2016, with ODI (excluding financial ODI) reaching $134 billion YTD in September, compared to just $95 billion in inflows.

“ However, as we have highlighted in our previous report, Chinese ODI figures present some limitations. MOFCOM requires companies to register the first (not the final) destination of their cross-border transactions and does not take into account reverse flows.

“This makes it hard to determine the final size and distribution of Chinese ODI, as figures are significantly distorted by the presence of intermediaries such as Hong Kong - and tax havens in the Caribbean.  www.bbva.research.com (ATI).