China’s Economic Outlook: Implications for Outbound Investment

China’s 2012 economic performance reflected not just a cyclical downturn due to real estate and infrastructure investment lulls, but a deeper, structural shift. Medium-term potential remains strong, though stepped down. But reaching that potential depends on policy action now, since Beijing will not enjoy a full year honeymoon to sort out its priorities. China’s burgeoning outbound direct investment is a symptom of this difficult internal adjustment, as firms need to adjust their business model, and investors are eager to diversify risk. This is not an indication of China taking over the world, but efforts by corporate China to catch up after decades of a growth model focused on domestic investment and exports. The process of rebalancing China’s external investment portfolio will increase the mainland’s global direct investment assets from $400 billion today to $1-2 trillion by 2020.

Available will be the newly-released Asia Society-commissioned report Chinese Direct Investment in California, co-authored by Daniel Rosen and Thilo Hanemann. Building on the 2011 Asia Society study An American Open Door?: Maximizing the Benefits of Chinese Foreign Direct Investment, the new report finds that the potential gains for California and China are enormous but that success is far from guaranteed. It urges policy and business leaders in the state to do better to out-compete outer states and seek to increase their own shares of the Chinese outbound investment surge.