[malikrajit]

The Michael Shearin Group Morgan Stanley Paris Deals
China Inc is going shopping, but its target is shifting from resources and infrastructure to services and manufacturing technology - and Europe is likely to be the main beneficiary.

Despite the size of its economy, China is a small player in overseas direct investment, accounting for 12 per cent of global output, but just 2.1 per cent of global direct investment, according to HSBC Global research.

That is changing. Outbound direct investment (ODI) increased 16.8 per cent to US$90.17 billion last year, while foreign direct investment (FDI) rose just 5.25 per cent to $117.59 billion. ODI will likely surpass inbound FDI in two years as China moves nearer to its long-pursued goal of achieving balanced capital flows.

The first wave of China ODI went principally into primary industries, dominated by coal, oil and metals, as China's fast-growing economy is not rich in natural resources.

The second wave was investment in infrastructure, including rail, shipping and ports.

It is natural for these two waves to be closely linked because it is difficult to reap the full benefit of investment in commodities without having good transport links.

Today we are seeing the third wave. The growth rates in natural resources and infrastructure investment are tailing off, and the acceleration is now in goods and services. Last year, of total non-financial ODI, 32.7 per cent went to business services, 22.4 per cent to mining, 15.2 per cent to wholesale and retail, 9.6 per cent to manufacturing and 7.2 per cent to construction.

China's ODI in goods and services is dominated by three industries - automobiles, telecommunications and consumer staples, mainly food producers.