China has been a favoured destination for foreign direct investment since its economy opened up more than three decades ago. However, the country’s own investments abroad will soon overtake inflows. This is good for China and the rest of the world: China stands to make better returns on its foreign reserves while generating demand for its exports, while countries in need of investment can tap into a new and fast-growing source of funding.
How China exports its excess savings abroad will be a major theme driving flows into different countries and sectors.
Infrastructure is a good place to start. China’s infrastructure boom in recent years has created an economy well suited to designing, building and servicing large infrastructure projects. Although we argue that there is still plenty of room for Beijing to keep investing in domestically, the peak may have passed. So it makes sense for China to look overseas to put all that capacity and expertise to use.