Executive Summary
·
Over the
last ten years
·
Concurrent with the growth of its trade and consistent
trade surpluses,
·
At end-2002
·
The growth in
· China consistently runs deficits on its international services trade -- $6 billion in 2001 – that partly offset its goods trade surpluses. China’s peak goods trade surplus was in 1998, $43.3 billion, but balances have since been declining and 2003 may bring a surplus of only $10 billion or less. Japan’s has frequently run trade surpluses of $100 billion or more and its 2003 surplus will likely be upwards of $93 billion.
· China’s growth as a force in international trade has been quite remarkable. Its share of world goods exports rose from only 1.8 percent in 1990 to 4.3 percent in 2001, making it the world’s 6th-ranking exporter. Imports rose from 1.5 percent of the 1990 world total to 3.8 percent in 2001, making it also the 6th-ranking goods importer.
· China’s trade expansion has been achieved almost totally in manufactured goods; 88.6 percent of its 2001 goods exports were manufactures, up from 71.4 percent in 1990. In 2001 it was the 4th largest exporter of manufactured goods, lagging only the EU, US, and Japan. In 2003 China will narrow the gap between it and 3rd-ranking Japan; possibly surpass Japan.
· The US, EU, and Japan all run trade deficits with China but US deficits are much larger. 2002 deficits with China were: US, $90.2 billion; EU, $42.8 billion; Japan, $26.8 billion. China’s surpluses with these and other developed countries are partly offset by deficits with a number of Asian suppliers of parts and raw materials inputs for China’s manufactures.
· Although China’s goods trade surplus will likely decline this year to $10 billion or less, the US trade deficit with China will rise to new high, probably in excess of $108 billion and substantially larger than a projected deficit with Japan of upwards of $64 billion. China will account for more than one-fifth of the US goods trade deficit in 2003.
· US imports from China are dominated by electronic and electrical consumer goods, as well as large quantities of Toys and Sporting Goods ($14.4 Bn in 2002), Footwear ($10.2 Bn), Furniture and Bedding ($9.9 Bn in 2002) -- and a wide variety of other low-technology consumer goods.
· Data on “Related party trade” -- exports to and imports from the foreign affiliates of US companies –- provides one imperfect measure of the effects of US Foreign Direct Investments on US trade flows. The measure is an imperfect measure of the effects of US foreign investments on US imports because related party trade may include trade between the US affiliates of a foreign company and its parent or another foreign affiliate of the foreign parent. The portion of total US imports from China coming from “Related Parties” has grown from 10.5 percent in 1992 to 20.5 percent in 2002; exports from 4.9 percent to 12.3 percent. However, because exports to China are small the 12.3 percent to related parties was only $2.5 billion, whereas the 20.5 percent share of related party imports from China was a substantial $25.5 billion.
· During the 1990s China became a major destination of Foreign Direct Investment (FDI). As reported by China, its FDI inflows have been quite stable in recent years, ranging from $40 billion in 1996 to almost $47 billion in 2001, 6.4 percent of the world total inflows of $735 billion reported by UNCTAD in 2001 and down from a 10.4 percent share of 1996 world inflows.
· According to UNCTAD, World Inward FDI stocks reached $6.8 trillion in 2001, more than double the $2.9 trillion 1995 level. China’s stock of FDI rose that year to $395.2 billion, 5.8 percent of the world total. Hong Kong’s stock in 2001 was $451.9 billion, 6.6 percent of the world total. Thus, ignoring indeterminate amounts of double counting that would result from combining inflows to the two countries (much of the investment reported as made in Hong Kong is recycled to China), China and Hong Kong together hosted some 12.4 percent of world FDI stocks in 2001.
· Per UNCTAD data, the United States is the largest single country source of FDI, with $1.382 billion invested abroad, 21.1 percent of the world total, followed by the UK, $943 billion, 14.4 percent of the total.
· FDI flows expressed as a percent of gross fixed capital formation can provide a crude measure of the importance of FDI in an economy’s capital formation. According to UNCTAD data, inward FDI flows in 2000 were equivalent to 22.0 percent of world gross fixed capital formation; for China inward flows were 10.5 percent of its Gross Fixed Capital Formation.
· Similarly, FDI Stocks – the accumulation of FDI inflows in a country – expressed as a percent of Gross Domestic Product can provide a rough indicator of the importance of FDI to a nation’s economy. For the world as a whole FDI stocks in 2000 were equivalent to about 20.0 percent of world GDP. China’s stocks were equivalent to 32.3 percent of its GDP.
· According to China data, in 2002 the US was the source of $5.4 billion of the FDI inflow that year, 10.2 percent of the total. Also according to China data, over the 11 years 1992-2001 the US provided China $37.6 billion of FDI, 8.9 percent of the $422.9 billion total from all source countries.
· China data indicate that the vast majority of FDI comes from Asian sources. In 2001, 63.7 percent of “amount utilized” came from Asian sources – 36.0 percent from Hong Kong alone -- and only 8.7 percent from the EU and 10.4 percent from the US.
· China Ministry of Foreign Trade and Economic Cooperation data indicate that the majority of recent FDI inflows is invested by “Wholly Foreign Owned Enterprises”, 60.2 percent of the total in 2002, up from 50.3 percent in 2001. Equity Joint Ventures are the next largest type of FDI, 28.4 percent in 2002, down from 34.7 percent in 2001.
· Ministry data show that the overwhelming majority of China’s incoming FDI is going to its manufacturing sector, 69.5 percent in 2002, up from 56.1 percent in 1999 and 63.5 percent in 2000.
· US Department of Commerce data indicate a much smaller amount of US FDI in China than do China’s data. US data show a total stock position at end-2002 of only $10.3 billion, far less than would be indicated by the inflows from the US recorded by China’s data, which summed to $37.6 billion over the 1992-2001 period. Part of the discrepancy is due to the fact that US data record only the first destination of US FDI; not the ultimate destination. Thus, some FDI recorded in US data as going to Hong Kong and other popular recycling destinations such as the Virgin Islands, may well wind up in China. According to US data, US FDI in Hong Kong at end-2002 totaled $35.8 billion.
· US data show US FDI in China as only 0.7 percent of total US FDI abroad, with FDI in Hong Kong at 2.4 percent of the US world total.
Table 1: Exports,
Imports and Foreign Reserves,
China and Selected Asian Countries, 2002
and 2001
Source: World Trade Atlas, WTO International Trade Statistics 2000, and IMF
· The rapid increase of China’s international trade and the increased flow of investment into China have drawn attention to the similarly large increase in its foreign reserves which, at end 2002 reached $291.1 billion and have since grown to $356.5 billion.
· China’s reserves, while large, remain smaller than those of Japan, which totaled $451.2 billion at end-2002.
· At end-2002 China’s foreign reserves were 89.4 percent of its 2002 goods exports, 98.6 percent of its imports. Japan’s reserves were 108.1 percent of exports, 133.5 percent of imports. Similar relationships for Taiwan were, respectively, 96.8 and 114.1 percent.
· At $111.2 billion Hong Kong’s 2001 reserves were just over half of both total exports and total imports. But the vast bulk of Hong Kong’s trade is re-exports and its reserves were equivalent to 5 ½ times its domestic exports and 3 ½ times its retained imports.
Table 2: Current
Account Balances and Foreign
Reserves, 1990-2002,
China and Selected Asian Countries
Source: International Monetary Fund
· A nation’s international trade performance is an important factor in determining the amount and direction of its foreign reserves. Other things equal, trade surpluses tend to increase foreign reserves; deficits tent to decrease reserves. But trade performance is not the only factor. International investment flows also play a major role -- sometimes the dominant role.
· Annual performance in international trade in goods and services is best measured by current account balances, which include trade in services as well as goods trade. China’s emergence as a major trading nation began in the early 1990s. China typically ran relatively modest current account surpluses over the 1991-2002 period, with a peak surplus of $35.4 billion in 2002 and two additional surpluses over $30 billion over the 13 year period.
· During the same thirteen year period Japan consistently ran much larger current account surpluses, including eight over the $100 billion level.
· Over the 13 year period China had a cumulative current account surplus of $191.0 billion; Japan’s surplus was $1,309 billion. More than $1.1 trillion larger. But during this time China’s reserves increased by $262.5 billion, considerably more than its $191.0 billion current account surplus. Japan’s foreign reserves increased by $372.2 billion, much less than its $1,309.1 billion cumulative surplus for the period.
Table 3: Commercial
Services Exports and Imports,
China and Hong Kong, 1991-2001
Source: WTO International Trade Statistics, 2002, Tables A.6 and A.7
· As is true of most nations, China’s current account goods and services trade balances are determined primarily by its goods trade. Goods exports in 2001 were about 8 times services exports. China’s goods trade consistently yields surpluses but its services trade yields deficits, $6 billion in 2001.
· China runs surpluses in the “Travel” (tourism) component of Business Services but deficits on “Transportation” and “Other Business Services.” The latter includes a wide variety of services including Royalties and License Fees, Insurance, Financial Services, Telecommunications, etc.
· Hong Kong consistently generates significant surpluses in its services trade; over $17 billion in 2001.
Table 4: Merchandise Trade, China, Hong Kong & Taiwan, 1990-2001
Source: Tables A.5 and A.6, WTO International Trade Statistics, 2001 and 2002
· China has rapidly become a major factor in world merchandise (goods) trade. Goods exports rose from $62 billion in 1990 to $266 billion in 2001. Exports in 2003 will likely reach $400 billion, a more than six-fold increase over the 1990 level.
· Import growth has been even more rapid, likely reaching $385 billion in 2003, a more than seven-fold increase from the 1990 level.
· China runs consistent merchandise (goods) trade surpluses. Its goods surpluses, however, peaked in 1998 at $43.3 billion and have been declining since then. The 2003 surplus will likely be less than $20 billion, perhaps $10 billion or less.
· Hong Kong runs persistent modest deficits on its goods trade. Deficits occur both in its total goods trade, including re-exports of imported goods, and on trade on exports of goods originating in Hong Kong and imports retained in Hong Kong. Recent deficits have ranged from $6 to $25 billion.
· Over the 1990 to 2001 period Taiwan’s consistent trade surpluses have ranged from a low of $5.6 billion in 1998 to a high of $15.2 billion in 2001.
Table 5: China’s Shares in World Merchandise Trade
Source: WTO International Trade Statistics, 1999, 2000, 2001, 2002
· In share terms, China’s international goods trade advance has been equally dramatic, rising from only 1.8 percent of world goods exports in 1980 to 4.3 percent in 2001.
· Imports rose from 1.5 percent of the world 1990 total to 3.8 percent in 2001.
· Expansion of China’s shares of world manufactured goods trade has been even more rapid, increasing to 5.3 percent of world exports and 4.1 percent of imports in 2001
· 2002 and 2003 data, when available, will reveal still further growth in China’s shares of world goods trade, particularly its manufactures trade.
Table 6: Leading Exporters & Importers in World Merchandise Trade, 2001
Source: Table I.5, WTO International Trade Statistics, 2002
· The rapid growth of China’s trade by 2001 made it both the 6th ranking goods exporter and importer country.
· Continued rapid growth in 2002 and 2003 will probably raise China to 4th ranking exporter and importer in 2003, passing both France and the United Kingdom.
· At current rates of growth China will likely pass Japan as both a goods exporter and importer in the near term future.
Table 7: Leading Exporters & Importers of Manufactures, 2001
Source: Table IV.25, WTO International Trade Statistics, 2002
Table 7, Continued…
· By 2001 China was the 4th-ranking exporter of manufactured goods, lagging only the EU, US, and Japan.
· China’s manufactures exports share has risen at a remarkable rate, from only 0.8 percent in 1980 to 1.9 percent in 1990 and 5.3 percent in 2001. 2002 and 2003 data, when available, will show further increases.
· By 2003, China may well approach Japan as a manufactures exporter, but it will remain well below the levels of the EU and the US
· Table 7 also illustrates the declining relative shares of the EU and Japan as manufactures exporters. But notwithstanding its huge manufactures trade deficits, the US share of exports has been relatively stable, 13.5 percent in 2001.
· The huge US manufactures trade deficits of recent years stem from the very large expansion of manufactures imports, both in dollar and share terms. The US share of world manufactures imports rose from 11.2 percent in 1980 to 15.4 percent in 1990 and 19.4 percent in 2001.
Table 8: Global
Merchandise Trade
Balances of
China and Selected Countries, 2000-2003
Source: World Trade Atlas, Partial year 2003 extrapolated to full year
· Table 8 compares the global goods exports, imports, and trade balance of China with those of selected major trading nations for 2000-2002 and provides 2003 amounts estimated by simply extrapolating part-year results. Based on existing trends, the United States deficit will increase to a new record, probably larger than the $507 deficit indicated in the table from a simple doubling of first half performance, perhaps reaching $570 billion.
· China’s surplus will likely decline to around $10 billion or less in 2003 but Japan’s surplus will probably increase substantially from the 2002 level of $79.2 billion, perhaps approaching $100 billion.
· The EU’s external trade will likely be near balance, with a modest deficit or surplus.
Table 9: Composition
of China’s Trade With the World By
Major Product Groups, Selected Years
Source: WTO International Trade Statistics, 1999, 2000, 2001, 2002
· China’s trade with the world is dominated by manufactures; 88.6 percent of its total 2001 exports, 78.0 percent of imports.
· Manufactures surpluses are large, $50 billion in 2000, $46 billion in 2001. The same years, however, Japan’s manufactures trade surpluses were $237 billion and $176 billion.
· China’s manufactures trade surpluses are offset by modest deficits in Agricultural goods ($3.5 billion in 2001) and Fuel trade ($12.8 billion in 2000 and $9.1 billion in 2001). Deficits in both categories are likely to enlarge as food imports rise with gains in living standards and as oil imports increase to support the continued industrialization of China.
Table 10: China’s Manufactures Trade By Selected Product Groups
Source: WTO International Trade Statistics, 1999, 2000, 2001, 2002
Table 10, Continued…
· Although the US runs very large manufactures trade deficits with China – over $90 billion in 2001 and continuing to enlarge – China is a net importer of many manufactured goods, holding its global manufactures surplus to $46 billion in 2001.
· In 2001, China was a net importer of Iron and Steel, Chemicals, Machinery and Transport Equipment, and registered only a modest surplus in Office Machines and Telecommunication Equipment.
· Its consistent, growing sources of manufactures surpluses include: Textiles, Clothing, and Other Consumer Goods. The latter category includes a wide variety of toys, games, sporting goods and other low technology consumer items.
Table 11: US,
EU, and Japan Trade With China,
By Major Product Categories, 1999-2001
Source: International Trade Statistics, 2002, Tables A.16, A.12, and A.10
· The US, EU, and Japan all incur deficits in their goods trade with China but the US deficits are much larger, $90.2 billion in 2001, compared to $42.8 billion for the EU and $26.8 billion for Japan.
· Although China has trade surpluses with the US, EU, and Japan, it runs deficits with several Asian countries that supply it with raw materials and other inputs for its manufactured goods production and exports.
· The US and EU deficits result almost entirely from manufactures trade but Japan also incurs deficits with China in agricultural products -- $6.2 billion in 2001.
· US manufactures exports to China are modest -- $15 billion in 2001 – and smaller than those of the EU ($24 billion) and Japan ($28 Billion).
· The bulk of manufactures exports to China by the US, EU, and Japan, however, is component parts and inputs for assembly into finished products in China, much of which is re-exported, principally to the US.
Table 12: US Balance of Trade By Country, 2000-2003
Source: US Dept of Commerce, Census Bureau
· The US merchandise (goods) trade deficit will increase to a new record in 2003. A simple doubling of first half results, shown in the table, yields a deficit of $507 billion. However, given the pickup in US economic growth and the seasonality of imports of some consumer goods, the actual deficit will likely be larger. In fact, a major US forecasting firm projects a goods trade deficit of $570 billion, offset by a services surplus of only about $24 billion. The result would be a goods and services deficit balance of $546 billion, equivalent to some 5 percent of Gross Domestic Product.
· Based on a doubling of first-half results, however, Table 12 shows a 2003 US goods deficit with China of $108 Billion, well ahead of the projected $64 billion deficit with Japan and equivalent to about just over one-fifth of the projected total goods trade deficit. The actual deficits with both China and Japan will, however, likely be several billion dollars larger.
· The US runs deficits with most of its major trading partners and particularly large deficits with Canada, Mexico, Germany, and Ireland. Deficits with those four will likely exceed $150 billion in 2003.
Table 13: Top US Export Destinations, 2000-2003
Source: US Dept of Commerce, Census Bureau
· At $22.1 billion, 3.2 percent of total US exports, China was the 7th-ranking destination for US exports in 2002, up from 11th rank in 2000.
· Taiwan, at $18.4 billion, and 2.7 percent of the total, was the 9th-ranking US export destination, with Hong Kong 14th at $12.6 billion.
Table 14: Top US Import Suppliers, 2000-2002
Source: US Dept of Commerce, Census Bureau
· In 2002 China replaced Japan as the 3rd largest supplier of US imports. Imports from China reached $125.2 billion, 10.8 percent of the total, not far behind 2nd ranking Mexico at $134.6 billion, 11.6 percent of the total. Based on first-half results, imports from China may top $135 billion and China could replace Mexico as the 2nd largest goods supplier in 2003.
· The declining share of imports from Japan – from 12.0 percent in 2000 to 10.5 percent in 2002 – probably reflects in part the movement to China of much of Japan’s electronic consumer goods production for the US market.
Table 15: Top US Imports From China by Major Product Groups, 2000-2002
Source: US Dept of Commerce, Census Bureau
· Table 15 shows the principal HS (Harmonized System) categories of US imports from China. “Electrical Machinery” (HS 85) and “Machinery” (HS 84) are the two largest product groups, with 2002 imports of $24.4 billion and $20.2 billion respectively. These product group labels are, however, somewhat misleading in that they include a wide range of consumer goods, such as radios, telephones, TVs, electrical appliances, etc.
· Also noteworthy are the very large and growing imports of “Toys and Sporting Equipment" (HS 95) at $14.4 billion and “Footwear” (HS64) at $10.2 billion.
· “Furniture and Bedding” (HS 94) imports from China have expanded rapidly, reflecting strong gains in the last few years in the quality of Chinese products and the increasing reliance US companies have on China as a source. Imports in this product group have increased from $7.2 billion in 2000 to $9.9 billion in 2002 and could top $12 billion in 2003.
Table 16: US Balance of Trade With China by major Product Groups, 2000-2002
Source: US Dept of Commerce, Census Bureau
· Table 16 provides the trade balances of major product groups in US goods trade with China. Electrical Machinery (HS 85) and Machinery (HS 84) are the largest sources of US deficits with China, $20.5 billion and $16.1 billion respectively. These data do not, however, indicate capital goods deficits. Both groups include a wide range of electrical and electronic consumer goods.
· Also important are the huge deficits in more mundane, low-technology goods. Toys and Sporting Goods, Footwear, and Furniture and Bedding together generated a 2002 deficit with China of $34.5 billion, an amount likely to rise in 2003.
Table 17: US Related Party Trade Imports, China & Selected Countries, 1992-2002
Source: US Dept of Commerce, Census Bureau
· Table 17 provides one measure of the effects of US Foreign Direct Investments (FDI) on US trade. “Related Party Trade” includes trade by US companies with their subsidiaries, as well as trade by US subsidiaries of foreign companies with their foreign parent companies and other foreign affiliates of their foreign parents. It is thus an imperfect indicator of the effects of US FDI on US imports because the data also reflect the imports of foreign companies in the US from their foreign parents and foreign affiliates. This particularly affects data concerning countries with major foreign direct investments in the United States. For example, the US affiliates of Japanese auto companies, some of which are established in the US in part to accomplish imports of parts and vehicles into the US, significantly increase the percentage of US imports from affiliated parties. Imports of autos from Japan by Japanese companies in the US thus are major contributors to the 76.6 percent portion of US related party imports from Japan. However, the imports of a Japanese company in the United States from an affiliated Japanese company in China would be reflected in related party imports. There is perhaps less distortion of the data in the case of countries, such as China, that have only modest FDI in the US.
· Overall, table 17 indicates the portion of total US imports coming from “related parties” has been relatively stable, rising from 45.0 percent in 1992 to 47.6 percent in 2002.
· The portion of total imports from China coming from related parties has, however, risen rapidly, from a modest 10.5 percent in 1992 to 20.5 percent in 2002.
Table 18: US Related
Party Trade Exports,
China and Selected Countries, 1992-2002
Source: US Dept of Commerce, Census Bureau
· The portion of total US exports going to related parties has increased only modestly over the last decade, rising from 30.9 percent in 1992 to 31.3 percent in 2002.
· The related party share of US exports to China has, however, risen rapidly, from 4.9 percent in 1992 to 12.3 percent in 2002.
Table 19: US Related Party Trade With China, 1992-2002
Source: US Dept of Commerce, Census Bureau
· Table 19 provides the dollar value of both total and related party exports and imports in US trade with China.
· Because US exports to China are small the 12.5 percent exported to related parties in 2002 was only $2.5 billion. The 20.5 percent share of imports coming from a related party, however, was a substantial $25.5 billion.
Table 20: Foreign
Direct Investment Inflows By Host Country,
China and Selected Host Countries, 1990-2001
Source: UNCTAD World Investment Report 2002, Table B.1
Table 20, Continued…
· Foreign Direct Investment is often measured in terms of both “flows” and “stocks.” Flows are generally the amounts, in annual terms, which have moved from one nation to another. Stocks are the accumulations, generally measured at year end, that result from flows. The United Nations Conference On Trade and Development (UNCTAD) collects and publishes annual data on world FDI stocks and flows. Collection standards and definitions vary somewhat among nations, however, making international comparisons somewhat tenuous.
· World inflows of FDI – the amounts received by host countries -- have increased rapidly in recent years, from an annual average of $225 billion over the 1990-95 period to $1,492 billion in 2000 and $735 billion in 2001. Developed countries are the primary recipients of FDI, taking 68.4 percent of the 2001 total.
· UNCTAD data indicate that at $124.4 billion the United States remained in 2001 the largest recipient of FDI, albeit down markedly from $300.9 billion in 2000. In 2001 the US received 16.9 percent of total world inflows, down from a peak share of 26.0 percent in 1999.
· Inflows to China have been quite stable in recent years, ranging between $40 billion in 1995 to almost $47 billion in 2001, 6.4 percent of the world total, down from 10.4 percent in 1996.
· Inflows to Hong Kong have also been significant, $61.9 billion in 2000, but declining to $22.8 billion in 2001, 3.1 percent of the world total.
· Given Hong Kong’s role as an intermediary point in FDI flows to China, summing the China and Hong Kong shares involves an indeterminate amount of double counting. However, in 2000 combined flows to China and Hong Kong totaled $69.6 billion 9.5 percent of the world total.
· Taiwan has not been a significant recipient of world FDI inflows, usually taking less than one-half percent of the world total.
· Singapore has been more dependent on FDI, receiving an average of $5.8 billion annually over the 1990-95 period, 2.6 percent of the world total. Since 1995, however, although Singapore’s inflow amounts have increased somewhat, its share of world FDI has decreased and was only 0.4 percent in 2000, and 1.2 percent in 2001.
Table 21: World
Foreign Direct Investment Inward Stock
By Host Country, China & Selected Host
Countries
Source: UNCTAD World Investment Report 2002, Table B.3
Table 21, Continued…
· As Measured by UNCTAD, 2001 World Inward FDI stocks reached $6.8 trillion, more than double the $2.9 trillion 1995 level only 6 years earlier.
· Almost two-thirds of FDI stock is hosted by developed countries. According to UNCTAD – based on data supplied to UNCTAD by China -- China’s stock rose to $395.2 billion in 2001, 5.8 percent of the world total, compared to only 1.3 percent in 1990.
· Hong Kong’s total in 2001 was $451.9 Billion, 6.6 percent of the world total. Together, ignoring indeterminate amounts of double-counting, China and Hong Kong by 2001 hosted 12.4 percent of world stocks, about two-thirds the US share of 19.3 percent. 2002 and 2003 data will likely show continued enlargement of China’s share of world FDI stocks.
· Taiwan’s stocks of FDI are not a significant portion of the world total, only about one-half percent. Singapore, however, holds 1.5 percent of the world total.
Table 22: World Foreign
Direct Investment Outward Stock by
Home Country, China and Selected Countries
Source: UNCTAD World Investment Report 2002, Table B.4
Table 22, Continued…
· As would be expected, the majority (87.8 percent in 2001) of world stocks of FDI originates in developed countries. Including intra-EU investments, the European Union is the source of over half (52.5 percent) of world stocks at end 2001.
· The United States, however, is the largest single country investor, $1,382 billion, 21.1 percent of the world total, followed by the United Kingdom, $943 billion, 14.4 percent of the total.
· China is not a major foreign investor -- only 0.4 percent of the world total -- but Hong Kong, including its investments in China, has FDI totaling $374.8 billion, 5.7 percent of the world total.
Table 23: World Inward & Outward Foreign Direct Investment Flows as a percent of Gross Fixed Capital Formation, China and Selected Countries
Source: UNCTAD World Investment Report 2002, Table B.5
Table 23, Continued…
· FDI flows expressed as a percent of gross fixed capital formation can provide a crude measure of the importance of FDI in an economy’s capital formation. According to UNCTAD data, inward FDI flows in 2000 were equivalent to 22.0 percent of world gross fixed capital formation, outward flows were 20.6 percent. For developed countries the percentages were, respectively, 25.0 percent and 25.9 percent.
· For China inward flows in 2000 were 10.5 percent of Gross Fixed Capital Formation, outflows only 0.2 percent. Comparable flows for Hong Kong, however, were 144.9 and 138.9 percent.
· US inflows in 2000 represent 17.5 percent of capital formation, outflows only 9.6 percent. These figures contrast markedly with 1990-95 US data, which indicated 4.3 percent for inflows, 6.1 percent for outflows.
Table 24: World
Inward and Outward Foreign Direct Investment Stocks
as a Percent of Gross Domestic Product
Source: UNCTAD World Investment Report 2002, Table B.6
Table 24, Continued…
· FDI stocks – the accumulation of FDI inflows in a country – expressed as a percent of Gross Domestic Product can also provide a rough indicator of the importance of FDI to a nation’s economy.
· For the world as a whole FDI stocks in 2000 were equivalent to about 20.0 percent of gross domestic product. For developed countries inward stocks were equivalent to 17.1 percent of GDP; outward stocks 22.1 percent. The EU percentages however, are higher; 30.3 percent for inward, 40.1 percent for outward. The United Kingdom’s inward stocks are 30.5 percent of GDP; outward, 63.2 percent.
· Although the US is both the largest investor abroad and the largest recipient of FDI, its stocks relative to GDP are lower than those of many European countries. US inward stocks were 12.4 percent of 2000 GDP, outward stocks were 13.2 percent.
· The stock of FDI in China relative to its GDP has grown rapidly, rising from only 7.0 percent in 1990 to 32.3 percent in 2000. Its outward stocks are negligible, 2.4 percent of GDP
· Hong Kong’s inward FDI is equivalent to nearly 264 percent of GDP; outward is nearly 225 percent of GDP.
Table 25: Foreign Direct Investment in China, (Total and US), 1979-2002
Source: China Ministry of Foreign Trade and Economic Cooperation
· Table 25 provides China Ministry of Foreign Trade and Economic Cooperation data quantifying the numbers of FDI contracts and the dollar amounts of FDI investments in China over an extended period. The “Amounts Utilized” correspond to the dollar values reported in UNCTAD data as annual inflows. This table provides data for 2002, one year later than the 2001 stock and flow data currently available from UNCTAD.
· The data show inflows (Amount Utilized) rising to a new record of $52.7 billion in 2002, together with a record number of 34,171 new contracts.
· According to China data the US was the source of $5.4 billion of the 2002 Amount Utilized inflow, 10.2 percent of the total. The highest US share of inflows since the dramatic expansion of FDI inflows to China began in 1992 was in 2000, 10.7 percent of the total. Over the 11-year 1992-2002 period the US provided $37.6 billion of “Amounts Utilized,” 8.9 percent of the $422.7 billion total.
Table 26: Top Regions/Economies Foreign Direct Investments in China, 2001
Source: China Ministry of Foreign Trade and Economic Cooperation and US-China Business Council
· Table 26 provides China data quantifying the country and regional sources of FDI inflows to China for the year 2001.
· Focusing on the “Amounts Utilized” it is noteworthy that 63.7 percent of 2001 inflows came from Asian sources, only 8.7 percent from the EU and 10.4 percent from the US.
· Other significant sources included: Hong Kong, 36.0 percent; Japan, 9.8 percent; and Taiwan, 6.7 percent.
· Also noteworthy is the $4.2 billion -- 10.8 percent of total – that originated in the Virgin Islands, probably indicating that subsidiaries of firms located elsewhere are the real source of the capital.
Table 27: Types of Foreign Direct Investments in China, 2001-2002
Source: China Ministry of Foreign Trade and Economic Cooperation and US-China Business Council
· China data reports FDI amounts contracted and utilized in five types of investments. The data show that 60.2 percent of “Amounts Utilized” in 2002 were investments in “Wholly Foreign Owned Enterprises” (WFOE), up from 50.3 percent in 2001.
· “Equity Joint Ventures” are second-ranking in importance, 28.4 percent, down from 34.7 percent in 2001.
· “Contractual Joint Ventures” were 9.6 percent of the 2002 total, down from 12.9 percent in 2001.
· “Shareholding Ventures” and “Joint Resource Exploration” were each less than one percent of total in 2002.
Table 28: Sectoral
Composition of China’s
Utilized Foreign Direct Investment, 2002
Source: China Ministry of Foreign Trade and Economic Cooperation and US-China Business Council
· Of the $52.7 billion of “Utilized Foreign Direct Investment” in 2002, $36.8 billion, 69.5 percent, went to the Manufacturing sector. This represents an increase from the portions of 56.1 percent in 1999 and 63.5 percent in 2000.
· The 10.7 percent share of Real Estate was down from the 13.9 and 11.4 percent shares of 1999 and 2000.
· Investments in Utilities (electric, gas, water) also have been declining as a percent of total; from 9.2 percent in 1999 to 5.5 percent in 2000 and only 2.6 percent in 2002.
Table 29: US Direct
Investment Position on a Historical Cost Basis,
China and Selected Countries
Source: US Dept of Commerce
Table 29, Continued…
· Table 29 shows the growth the growth in the stock of US Direct Investment globally and in selected countries. According to US Department of Commerce data the total stock of US investment in China by end-year 2002 was only $10.3 billion, down slightly from the $11.4 billion shown for 2001.
· US data show that China is host to only 0.7 percent of US direct investments abroad, considerably less than the Hong Kong (2.4 percent) and Singapore (4.0 percent) shares.
· The $10.3 billion 2002 reported stock position in China per US data contrasts markedly with the stock that would be expected to cumulate from the “Amounts Utilized” indicated by China FDI inflow data which, for the period 1992-2003 alone totaled $37.6 billion (see table 26) .
· China does not publish stock data by country of origin but there are a variety of reasons why cumulating data on China’s reported inflows and matching them against US position data may yield very different results.
· There has been no definitive study to rationalize the differences between US statistics on FDI stocks and flows and the statistics of China and other countries. Informed opinions, however, offer several reasons. One important reason is that US data reflects the first destination of FDI outflows, not the ultimate destination. For example, a good bit of FDI sent to Hong Kong by US and other foreign investors is doubtless recycled to China. The US investments in Hong Kong, however, are recorded in US statistics as FDI in Hong Kong. Other countries, including the Virgin Islands, may also be intermediaries for FDI destined for China.
· Also, US direct investment data attempts to measure only those capital flows that have actually occurred, not the value of contracted amounts. Other countries may, by contrast, record the total amount of a contract when it is entered into, even though capital movements may not coincide in timing.
· It is also thought that, in some instances, the total amount of the investment transaction may be recorded by some countries as a direct investment from the investor country, even though part of the investment capital may be raised in the host country.
· These measurement difficulties and uncertainties place limitations on the ability of FDI data to make inter-country comparisons of stocks and flows with precision. Nevertheless, the available data should provide useful indicators of national and global trends. And, if a country applies its own measurement standards consistently, its data should provide a reasonably accurate, if not precise, description of the growth trends and directions of the direct investments it hosts and the relative shares of the country sources of that investment.