China will become the biggest cross-border investor by the end of this decade, with global offshore assets tripling from $6.4tn at present to nearly $20tn by 2020, say researchers.

While much of the total will be in the form of foreign exchange reserves and portfolio investment, a growing share will come from direct Chinese investment in western-developed countries, according to a joint report by the economic research company Rhodium Group and the Berlin-based Mercator Institute for China Studies.

 

based on the experiences of other countries, China’s global stock of outbound foreign direct investment, which includes investing in corporate mergers, acquisitions and start-ups, will increase from $744bn to as much as $2tn by 2020.

The report’s projections are valuable because official cross-border outbound FDI statistics from China and recipient countries are widely seen as being of poor quality and do not give an accurate picture of real investment flows. In barely a decade, Chinese outbound FDI has gone from almost nothing to $100bn a year, making it one of the three biggest exporters of direct investment globally.

Europe, in particular, has welcomed the Chinese largesse with open arms, especially in the wake of the global financial crisis and sluggish eurozone economic growth.

However, the report warns that surging Chinese investment will also require a change in attitude from recipient markets and their politicians to take full advantage of the opportunities and contain the risks.

“Characteristics such as the size, growth and complementarity of the Chinese economy create unique opportunities for Europe,” the report’s authors said.

“At the same time, some specific concerns that are related to the nature of China’s political and economic system, for example subsidies, China’s authoritarian political system and lack of openness to [foreign direct investment] in China, create particular challenges.”

While early Chinese investments focused on energy and natural resource assets in developing countries, investors are now looking to the US and Europe for opportunities.

Between 2000 and 2014, Chinese companies spent 46bn on 1,047 direct investments in the 28 EU countries, with most of the transactions coming in since the 2008-09 global financial crisis.

The UK is by far the biggest recipient of Chinese direct investment, with a cumulative total of 12.2bn over that period. Germany is second with 6.9bn and France third with 5.9bn.

Following a dro in 2013 to 6bn, from more than 7bn each year in 2011 and 2012, Chinese investment in Europe came surging back in 2014, reaching a record high of 14bn for the whole year.

Europe’s energy, automotive, food and real estate sectors attracted the most Chinese money.

Despite the recent sharp rise and heady predictions for Chinese outbound investment in the future, the country is still trying to catch up.

“China is so unique and important because it is already a major global investor and it has the potential to become the single most important driver of global FDI growth over the next decade,” the report said.

While China is the world’s biggest trader of goods, its share of global financial cross-border assets and liabilities barely reached 3.4 per cent by 2011.

Today, its stock of outbound FDI as a proportion of gross domestic product stands at just 7 per cent, compared with 38 per cent for the US, 20 per cent for Japan and 47 per cent for Germany.