OREANDA-NEWS. June 30, 2014. China's outward investment is very likely to exceed foreign direct investment inflows this year, making the country a net investor, according to officials at a United Nations body.

This "inevitable trend" will have "great significance in reshaping the economic structure and long-term development" of the world's second-largest economy, they said.

In 2013, China's foreign direct investment rose by 2.3 percent year-on-year to USD123.9 billion, ranking second in the world after the United States, according to the United Nations Conference on Trade and Development's World Investment Report.

"China remained the recipient of the second-largest flows in the world. Meanwhile, the quality of FDI inflows improved, with more into high-end manufacturing and services with high added value," said Zhan Xiaoning, director of the Investment and Enterprise Division at UNCTAD.

"What's more, China's outward investment is more striking," Zhan said.

In 2013, investment outflows from China increased by 15 percent year-on-year to USD 101 billion, the third highest in the world after the United States and Japan, the report said.

As China continues to deregulate outbound investment, outflows to developed and developing countries are expected to grow further, it said.

Zhan said, "China's economic landscape, driven by exports and foreign investment in the past three decades, will change significantly. Outward investment will serve as an important driver for industrial upgrading and economic growth."

Liang Guoyong, an economic affairs officer at UNCTAD, said, "It is very hard to predict when China will become a net investor, but the trend is inevitable."

The process will accelerate along with the nation's fast economic growth, the increase in Chinese companies' competitiveness and the amount of resources and market share they gain, Liang said.
The change will lead to a more effective allocation of financial resources for the Chinese economy, as the country holds the world's largest foreign exchange reserves, Liang added.

Huo Jianguo, president of the Chinese Academy of International Trade and Economic Cooperation, a Ministry of Commerce think tank, said China's new role as a net investor will help ease trade frictions.

"The rapid increase in overseas investment by Chinese enterprises is very likely to transform the trade landscape, because profits from the overseas market will lessen the country's reliance on exports, reducing trade frictions and pressure from swelling foreign exchange reserves," Huo said.