Page 44 - STRATEGY Magazine (G)

During the first half-century of its existence, the People’s Republic of China focused its investment activity largely within its own borders, modernizing its infrastructure, its industrial base, and its military. Political alliances made it a regional military power from its incep- tion in 1949, but it struggled economi- cally for several decades, concentrating the bulk of its efforts domestically. What manufactured goods it exported were considered to be of indifferent quality.
AN AWAKENING ECONOMY
In the early years of this century, however, China began a program of global investment, buying itself a stake in the future of nearly every region of the world. In 2003, its outward foreign direct investment (OFDI) was very mod- est, less than US $3 billion. By contrast,
its 2014 OFDI was just short of US $103 billion, and its aggregate investment during that span was more than half a trillion dollars.
The bulk of China’s OFDI, just over 70 percent, is in Asia, while only 13 percent is in Latin America. Of that, more than 90 percent has consisted of investments in the Cayman Islands and the British Virgin Islands, with the remainder divid- ed among Brazil, Argentina, Venezuela, and Peru. One of the major components of this investment has been the con- struction of infrastructure projects, including a transcontinental rail link connecting Brazil and Peru.
While Latin American countries need foreign direct investment (FDI) that will create more skilled, high-tech and managerial jobs for their people, China primarily emphasizes investments in
raw materials extraction. Not only does this emphasis primarily create low-skill, low-wage jobs, but in some cases the industries carry the potential to threaten the environment.
On the other hand, China must feed 22 percent of the world’s population, a major challenge for a nation with just
7 percent of the world’s arable land
and 6 percent of its water resources.
In addition, more than half the Chi-
nese population is urban, and shifting demographic patterns suggest that just over three-fourths of the population
will live in urban areas by 2050. This growing urban market dovetails nicely with Latin America’s highly competitive food processing and exporting industries, which are already well positioned to be
a reliable source of safe and nutritious food for China’s growing population.
42 STRATEGY
China Buys In
Since the turn of the 21st century, China has been more than a trading partner to the world’s nations. Always a stakeholder in the world’s economy, China now has the where- withal to become a real shareholder in the world’s various economic communities. Not surprisingly, its investment decisions seem oriented toward benefitting its position as a trading partner.