ODI growth rates set to increase sharply

Outbound direct investment is set to soar in the coming years, with double-digit growth rates predicted, the Ministry of Commerce said.

"China's ODI is still in the initial stages, but the growth trend looks set to increase,'' said Chen Runyun, commercial counselor at the department of outward investment and economic cooperation at the ministry.

ODI surged by 1.8 percent in 2011, from the previous year, to $60 billion.

But the figure, from January to April of this year, grew by 72.8 percent year-on-year to $23.16 billion. China's total ODI, at the end of April, stood at $345.1 billion.

"The trend is clear. ODI is on a fast-growth track which will probably continue for some decades," Chen said.

"Various factors, including the increasingly appreciating yuan, China's large foreign exchange reserves and domestic companies expanding abroad, are driving the fast growth.''

A recent ministry statement said that ODI is expected to register an annual growth rate of 17 percent from 2011 to 2015, reaching $150 billion in 2015. Contracted value for the nation's engineering projects is expected to reach $180 billion in 2015.

"There are abundant opportunities ahead for outbound investment and cooperation," the statement said.

China overtook Japan and the United Kingdom in 2010 to become the fifth-largest global investor. China was the largest investor among the developing nations in 2010 and 2011.

Overseas investment, by the end of 2010, mainly went to manufacturing, retail, wholesale, commercial services and mining. In his annual government work report, Premier Wen Jiabao said China will guide enterprises to buy, invest and merge in key sectors overseas, including energy, raw materials, agriculture, and manufacturing. This is the first time that specific sectors were included in the government report.

China's largest entertainment group, Dalian Wanda Group, agreed in May to buy AMC Entertainment Holdings Inc for $2.6 billion, including debt, in a bid to expand into the US.

The deal reportedly marks the largest-ever buyout of a US company by a Chinese firm, and also gives Wanda the second-largest operator in North America.

Wanda is also looking to buy a European cinema operator.

In terms of regions, Asia, Europe and Africa are the top three destinations for ODI.

Chen predicted that Latin America will be another key investment destination.

China's investment in the European Union jumped by 94 percent in 2011, year-on-year, to $4.28 billion, and in Africa it went up by 59 percent year-on-year.

Yan Jufen, chief representative at the China Council for the Promotion of International Trade in France, predicted future investment growth.

"The demand for new technology will continue to be a driving force behind the wave of Chinese investment," he said.

"And there is great potential in sectors such as the chemical and aviation industries and alternative energy."

Foreign exchange reserves and the rising value of the currency will also help, he said.

Che Shuming, deputy representative on the same council, said the major advantage of Chinese companies was their capital strength.

"But difficulties and obstacles remain,'' Che said citing as an example the technology block by European countries.

More and more overseas investment deals came through mergers and acquisitions. The report by China Venture said the value of deals in China's M&A market totaled $154 billion last year, up 74 percent from 2007. From January to April, the amount of finished deals through M&A reached $26.77 billion.

But Chen said that even though Chinese companies have the technical know-how and the capital, cultural factors often play a part.

Cultural guidelines were released in May for the first time by six ministries and bureaus, including the Ministry of Commerce.

"Chinese outbound companies need to strengthen their soft power," said Zhang Guoqing, deputy director of the department of policy research at the ministry.

The guidelines covered how to deal with differences in languages, customs, values and religious beliefs, and emphasized the importance of job creation.

Besides cultural issues, Li Rongcan, assistant minister of commerce, said "many Chinese companies and investors complain that they face protectionism''.

"Chinese investments create benefits for both China and other nations."

Usually, protectionism targets State-owned enterprises, and they contribute two thirds of Chinese ODI.

"We will see more private companies invest overseas," said Lu Jinyong, a professor at Beijing's University of International Business and Economics.