BOFIT Weekly Review 2015/32
Official figures may overestimate FDI outflows from China
Foreign direct investment flows from China abroad have risen much faster in recent years than FDI inflows into China. With financial sector investments included China’s FDI figures are even larger, but they are reported with a lag. There are also uncertainties associated with official FDI figures based on trade-ministry-approved FDI transactions registered since last autumn that could lead to overestimation of FDI flows.
Interpretation of official figures is complicated by “stop-over” investments, which flow through intermediate countries for e.g. tax reasons, but are invested immediately in a third country of final destination. A significant share of such investments may also be recycled back to mainland China (“round-tripping”) and should not be counted as FDI. The figures show that the most FDI inflows into China come from Hong Kong (70 % in 2014) and the Virgin Islands (5 %). The largest investment outflows from China went to Hong Kong (60 % in 2014) and the Cayman Islands (10 %). A recent BBVA Working Paper asserts that China’s 2013 outbound FDI may have been as much as 25 % overestimated after investments flowing from Hong Kong and tax havens back to mainland are properly acknowledged.
The Rhodium Group, which tracks Chinese FDI flows, notes that the trade ministry’s registered outbound FDI flows for years have been larger than Chinese acquisitions of foreign companies abroad. This suggests that part of outbound Chinese FDI has gone to securities investments.
Inbound FDI to China may also suffer from similar inconsistencies.