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Treading The Course Of History: A Perspective On Overseas Investment

22/11/2016 12:02

According to the FT, China will become one of the biggest cross border investor by the end of this decade with global offshore assets tripling from $6.4 trillion to $20 trillion by the end of 2020. It has been reported that while much of this investment comprises of foreign exchange reserves and portfolio investment, a growing share will also come from direct investment in developed western countries. A detailed public dataset compiled by the American Enterprise Institute and the Heritage Foundation exhibits that China's global investments and contracts in the period from 2005-2016 are valued at a whopping $1.3 trillion. Do we see any parallels of such mammoth overseas investment in history?

Stepping back in time

While working on a research project on colonial and foreign government securities, I went through various editions of the Money Market Review, a weekly commercial and financial journal, originating in 1860, housed at The Marshall Library of Economics at University of Cambridge. The volumes had a wealth of information regarding trade and finance besides having records of railway, banking, insurance, mining, steam and other public companies. Studying the archives of that era left me astounded by the extent of Britain's vast network of overseas investments.

The period from the end of 1848 to the early 1870s marked the world moving from a global economic slump to a long boom. There was a rapid rise in British investment overseas in Africa, Asia, and Latin America where capital worth £208 million invested by 1850 rose to £1.065 billion by 1875. Till the eve of the First World War, Britain had the highest amount of investments overseas. It has been estimated that between 1871-1913 4 to 8 percent of GNP was being sent out of the country, a number significantly higher than other developed nations at that time.

Locating the territorial flows of capital, India attracted the highest amount of investment. By the early 1860s India had assumed a central role in the transformation that was taking place in the world economy. In 1860-62 it attracted 21 percent of all British capital invested outside Britain and approximately 55 percent of all British capital invested in the empire. Of the capital invested, 72 percent was channeled into the transport sector, mainly railways, which represented about 94 percent of all British capital invested in this sector in the empire during 1860-62.

Current trends

Fast forward more than 150 years and China is estimated to have the highest investment overseas. Although transport still is a favorite sector for Chinese investment, it is energy which has attracted the highest amount of Chinese overseas investment, being about $549.7 billion or almost 41 percent of overall investment abroad. Chinese overseas assets primarily comprise of investments and construction contracts. It is investments which have the larger share of 58 percent. Both investments and construction contracts are seen to be on a rising growth trend with an increase of 13.4 percent and 17.3 percent respectively registered in 2015.

Dissecting this investment in terms of demography shows that Sub Saharan Africa is the region which has attracted the highest proportion of investment-17.8 percent primarily in the energy, transport and metal sectors. Europe and West Asia come next with a combined share of 30.2 percent also attracting investments primarily in the energy and transport sectors. China has also heavily invested in the UK with investments worth $38.1 billion, almost a third of which are in the real estate sector, during 2005-2016.

History also tells us that economic strength brings the ability to reassert oneself effectively in the global landscape. Undertaking gargantuan projects like China's Belt and Road Initiative connecting many Asian countries not only reflects China's economic interest but also protecting its larger foreign policy and national interests. Nobel laureate Dr. Abdus Salam once very wisely said, "The history of science like the history of all civilization has gone through cycles". Seemingly this time is China's.

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