China’s Capital Flow Situation

Prof. Xuesong Li

Institute of Quantitative & Technical Economics

Chinese Academy of Social Sciences

xsli@cass.org.cn

Meeting of BRICS Economic Research Group

Organized by NIPFP, New Delhi, Feb. 27, 2012

China’s Balance of of Payments in 2011

Trade surplus dropped to 2% of GDP in 2011

The total bilateral trade value increased rapidly in emerging

markets last year

FDI in China increased 10% in 2011

Outward direct investment increased 2% in 2011

Accomplished turnover of China’s foreign contracted projects

increased 12% in 2011

Fluctuations in cross-border capital flows intensified in China

at the end of 2011

China may face smaller but more volatile capital inflows

Main Contents

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Items Rows Q4, 2011 2011

1. Current account 1 598 2011

A. Goods and services 2 555 1884

a. Goods 3 709 2438

credits 4 5078 19036

debits 5 4369 16598

b. Services 6 -154 -554

credits 7 479 1826

debits 8 633 2381

B. Income 9 3 -142

C. Current transfers 10 40 269

2. Capital & financial account 11 -474 1867

Among that ： Direct investment 12 491 1705

3. International reserve assets 13 -124 -3878

3.1 Monetary gold 14 0 0

3.2 Special drawing rights 15 0 5

3.3 Reserve position in the IMF 16 -8 -34

3.4 International reserve assets 17 -117 -3848

3.5 Other creditor’s rights 18 0 0

China’s Balance of of Payments in 2011 （ preliminary data ） Unit: A hundred million US dollars, Source: SAFE

According to the statistics by the Customs,

China’s imports and exports in 2011 registered US$3.6 trillion with

a year on year increase of 22%.

Among that, exports amounted to US$1.9 trillion, up by 20% year

on year;

Imports was US$1.74 trillion, up by 25%. The growth rate of

imports was about 5 percentage points higher than that of exports.

Trade surplus was US$155 billion, a decrease of 15%. It has

declined in three consecutive years, and it amounted to 2% of GDP,

dropped from 3.1% of GDP in 2010, which was obviously within the

internationally recognized rational zone of trade balance standard.

Trade surplus dropped to 2% of GDP in 2011

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For example, China’s imports and exports in December registered

US$333 billion with a year on year increase of 13%. The growth rate

was 5 percentage points lower than that of November.

Among that, exports amounted to US$175 billion, up by 13%, the

growth rate dropped by 0.4 percentage point;

Imports was US$158 billion, up by 12%, the growth rate dropped

by 10 percentage points.

The growth rate of foreign trade was high first

then dropped down last year

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In 2011, the total trade value of Sino-Europe, Sino-US and Sino-

Japan were up by 18%, 16% and 15%, 4, 6 and 7 percentage points

lower than the overall growth rate respectively.

The total bilateral trade value between China and ASEAN was up

by 24%, 2 percentage points higher than that of overall growth rate.

The total bilateral trade value with China and Brazil, Russia and

South Africa were up by 35%, 43% and 77%, which were all higher

than the overall growth rate.

The total bilateral trade value increased rapidly

in emerging markets last year

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In the whole year of 2011, the actualized FDI in China reached

US$116 billion, up by 10% over the previous year, hitting a new

record once again.

However, similar to the foreign trade, the growth rate of FDI in

China was high first then dropped down last year. In December, the

actualized FDI amounted to US$12 billion, down by 13% year on

year.

FDI in China increased 10% in 2011

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The actualized FDI in manufacturing sector registered US$52

billion in 2011, up by 5% year on year, accounting for 45% of the

national total amount in the same period.

The actualized FDI in service sector amounted to US$55 billion in

the year, up by 21% year on year, accounting for 48% of the

national total amount in the same period, higher than that in

manufacturing sector for the first time.

The value and growth rate of actualized FDI in service

sector exceeded those in manufacturer sector

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In 2011, the actualized investment from the ten countries or

regions in Asia (Hong Kong, Macao, Taiwan, Japan, Philippines,

Thailand, Malaysia, Singapore, Indonesia and South Korea) totaled

US$101 billion, up by 14% year on year.

However, the actualized investment from the USA registered

US$3 billion, down by 26% year on year; and the EU 27 countries,

US$6 billion, down by 4% year on year.

Asia is the major source of FDI in China,

while FDI from Europe and USA declined

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According to the statistics by MOFCOM, in 2011, domestic

Chinese investors had directly invested in 3391 overseas

enterprises of 132 countries and regions in non-financial sectors,

accumulatively reaching US$60 billion, up by 2% year on year.

By the end of 2011, domestic Chinese investors established 18

thousand outward investment enterprises in 178 countries and

regions, amounting to US$322 billion in non-financial sectors on an

accumulative basis.

Outward direct investment increased 2% in 2011

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In 2011, outward direct investment to Europe and Africa

registered US$4.6 billion and US$1.7 billion, up by 57% and 59%

year on year respectively.

Among that, investment to the EU reached US$4.3 billion, up by

94% year on year.

ODI increased rapidly to Europe and Africa

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In 2011, direct investment by merger and acquisition (M&A) reached

US$22 billion, accounting for 37% of the total value of outward

investment in the same period, in the fields such as mining,

manufacturing, electricity generation and supply, transportation,

wholesale and retail, etc.

Sinochem Corporation purchased through its Hong Kong subsidiary

the 40% stocks of Statoil ASA’s Brazil Peregrino oil field at US$3.07

billion, which was the largest overseas acquisition project of Chinese

enterprises in 2011.

Merger and acquisition was conducted

in broader areas

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Talking about outward investment, a number of countries took

new protection measures against foreign investors such as

restrictions against investment from state-owned enterprises.

UNCTAD has published a report that there were an increasing

number of countries taking measures to restrict foreign investment,

which had certain negative effects on Chinese enterprises’ "going

global" strategy.

Moreover, the unrest and regime change in Middle East and

North Africa increased security risks of Chinese enterprises in

outward investment, making enterprises relatively cautious in

making investment decisions.

There were an increasing number of countries

taking measures to restrict investment from SOEs

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In 2011, the accomplished turnover of China’s foreign contracted

projects reached US$103 billion, up by 12% year on year. The value

of newly signed contracts registered US$142 billion, up by about 6%

year on year.

By the end of 2011, for China’s foreign contracted projects, the

value of signed contract reached US$842 billion on an accumulative

basis, and accomplished turnover amounted to US$539 billion.

Accomplished turnover of China’s foreign

contracted projects increased 12% in 2011

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In 2011, all kinds of labor sent abroad by labor cooperation

projects reached 452 thousand, 41 thousand more than that in the

previous year.

By the end of 2011, all kinds of labor sent abroad by labor

cooperation projects numbered 5.9 million on an accumulative basis.

Foreign labor service cooperation

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The outflow of speculative funds, or “hot money,” from China

marked an about-face of international capital, compared with a hot

money inflow totaling $35 billion in 2010.

China faced massive cross-border capital inflows in the first half

of 2011, driven by expectations of a stronger Yuan and interest rate

differences between China and other developed economies.

But the inflow trend was interrupted in the second half of last year,

particularly since the end of September 2011 amid the liquidity

crunch in overseas markets and reversed expectations towards the

Yuan in offshore markets.

Fluctuations in cross-border capital flows

intensified in China at the end of 2011

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Developed countries are unlikely to solve their structural problems

in the short term, and due to the persistent turmoil in global financial

markets, China faces the risk of frequent short-term cross-border

capital flows, China may face smaller but more volatile capital inflows

in the next few years. 

Even though the Yuan has become more internationalized over the

past years, the Chinese currency will remain a risky asset instead of a

haven currency, adding foreign exchange regulatory departments

should introduce more tools in the market to hedge against risks to

prepare for more flexible exchange rates of the Yuan.

China may face smaller but more volatile capital inflows

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In 2012, the European debt crisis and slow global economic

recovery will have a negative impact on China’s export growth. The

trade surplus will narrow further and current account will move

closer to balance.

China will maintain stable and relatively rapid economic growth for

a long time despite external shocks. International capital, especially

long-term capital, is likely to continue to flow into China on a large

scale. 

Fundamental factors will continue to support a surplus of China's

international balance of payment in 2012, but the surplus will fall

sharply with greater volatility. China’s international payments are

gradually moving toward balance. 

China’s international payments are gradually

moving toward balance

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