BEIJING, Nov. 9, 2009 (Xinhua News Agency) -- Chinese companies' efforts to invest overseas have considerably furthered the country's goal of diversifying its huge foreign exchange reserves and staving off potential forex asset risks.
China's forex reserves totaled 2,272.6 billion US dollars by the end of the third quarter, up 19.26 percent year on year. China is currently exploring ways to employ its huge forex reserves for its economic development so as to dilute forex asset risk.
To this end, the Chinese government previously suggested using forex reserves to support foreign trade and overseas investments.
Among various direct overseas investments, those into energy were a key segment. The acceleration of overseas energy investments can help China diversify its forex reserves and resist potential financial risks. During the first half, China's petrochemical enterprises signed a total of 44 billion dollars of "oil for loan" agreements with Russia, Brazil, Kazakhstan, and Venezuela.
China has expanded upon its overseas investment channels, including construction investments, cross-border mergers and acquisitions (M&As), overseas listing, and shareholdings of overseas companies.
In order to boost Chinese enterprises' overseas investments, China's Ministry of Commerce (MoC) has taken various measures, such as streamlining application procedures, downgrading approval powers, and crafting taxation, financial, insurance and foreign exchange policies with other departments.
According to data of the MoC, China's non-financial direct overseas investments totaled 32.87 billion dollars in the first three quarters. In the third quarter alone, the country's overseas direct investment reached 20.47 billion dollars, rocketing 190.4 percent year on year and 135.3 percent above the previous quarter. It is the first occasion for China to witness positive non-financial overseas direct investment within this year.
Chinese investors realized overseas direct investments of 14.3 billion dollars via M&As in the first three quarters, accounting for 43.5 percent of China's total overseas investments. The MoC said that the M&A deals were mainly focused on the mining and manufacturing sectors.
Guo Shuqing, board chairman of the China Construction Bank (OOTC:CICHY) (OOTC:CICHF) , suggested that China increase its overseas investments so as to diversify China's forex assets, and increase its capital support for developing countries.
According to Guo, China's overseas assets now total 2.9 trillion dollars, two thirds of which were mainly forex reserves, while China's overseas direct investments only took a 6 to 7 percent share of the its total overseas assets.
Guo said that the proportion of China's overseas direct investments in total overseas assets should be raised to between 20 percent and 40 percent.
China's overseas investments are expected to accelerate in the fourth quarter and into the following two years, as many Chinese enterprises are still negotiating with their foreign counterparts on possible overseas investments. Analysts pointed out that China's overseas investments can not only stimulate foreign countries' economy, but also help China reduce its forex asset risks and RMB appreciation expectations.
