China’s direct investment in the US plunged in the first half even as its overall foreign acquisitions rose to a record, underscoring the nation’s efforts to diversify its portfolio, according to the Heritage Foundation.
China’s non-bond investments in the US slumped 47 percent to US$1.6 billion, while those in the rest of the world surged 34 percent to US$29 billion, Derek Scissors, a Washington-based senior fellow for the group, said in a telephone interview on Wednesday.
Slumping direct investment in the US mirrors China’s US$51 billion reduction in purchases of Treasuries in the first half as it shifted part of the world’s largest foreign-exchange reserves out of dollars. The US risks being “marginalized” in China’s non-bond investment plans because of opposition to its buying from US lawmakers based on “China in our backyard hysteria,” Scissors said.
“China doesn’t want with direct investments to repeat the mistake it made in bond investments, where it’s stuck with the US and can’t do anything about it,” Scissors said. “The US is missing out on non-bond investments in manufacturing and resources for irrational reasons.”
In contrast to the cutbacks made in the US, China’s acquisitions in other nations in the Americas and Europe more than doubled, rising to US$20.1 billion from US$8.4 billion a year earlier, according to the Heritage Foundation’s China Global Investment Tracker that Scissors compiles.
China’s purchases of South Korean and Japanese bonds also have soared this year and diversification should be the “basic principle” of reserve management, former central bank adviser Yu Yongding (余永定) said in an interview this month.
Scissors said he tracks Chinese companies’ non-bond investments overseas valued at more than US$100 million that are recorded in official government data and other “reliable” sources.
Meanwhile, China said yesterday it hoped for wider use of its currency in trade with Southeast Asian nations.
“We are looking at the possibility of trade settlement in yuan or [ASEAN countries’] own currencies” within the framework of a free trade deal that took effect this year, Chinese Minister of Commerce Chen Deming (陳德銘) said.
“We hope to settle trade with ASEAN countries in [their] own currencies or in yuan if everybody is willing to do so,” he said on the sidelines of annual talks with his counterparts from the 10-member ASEAN.
Analysts say China is stepping up efforts to increase overseas use of the yuan as the nation seeks to reduce its exposure to the US dollar and allow its currency to take on a greater global role.
In the past two years, China has signed currency swap arrangements with several nations and launched trials for yuan trade settlement with a number of mainly Southeast Asian countries.
“We will organize a seminar specializing in the study of this issue at an appropriate time,” Chen said. “It will facilitate our cooperation on regional currencies.”
Despite the global success of Chinese exporters, the yuan plays only a minor international role because of restrictions on exchanging it for other currencies. Official controls make it difficult to move the yuan in and out of China.
The ASEAN-China Free Trade Area, which took effect earlier this year, is the world’s biggest by population, with a market of 1.7 billion consumers.
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