China's global investment set to pass inward flows as economy cools

By Xiaoyi Shao and Jake Spring

BEIJING (Reuters) - China's foreign direct investment (FDI) rose at its slowest pace in two years in 2014, underscoring a cooling economy which is spurring more Chinese businesses to plough money overseas in a trend that is soon set to overtake inbound investment.

As the world's second-biggest economy pulls back from the frenetic doubt-digit growth rates of the past, the nation's corporate sector is looking offshore to expand their footprint and fatten their profits.

The shifts were evident in China's foreign direct investment (FDI) for 2014, which rose an annual 1.7 percent to a record $119.56 billion, while outbound direct investment (ODI) surged 14.1 percent to a new high of $102.9 billion, the commerce ministry said on Friday.

"Based on the current trend, China's outbound investment will keep growing faster than inbound investment, leaving China to soon become a net outbound investment country," Zhong Shan, Vice Minister of Commerce, told reporters on Friday.

In January last year, the commerce ministry said that outbound investment could surpass inbound investment by 2016.

China's investment in the European Union last year was 1.7 times that of 2013 and investment in the United States rose 23.9 percent in 2014, Zhong said.

ODI growth, however, slowed from 16.8 percent in 2013 although there's been a steady drive among Chinese firms to muscle their way into global finance.

Chinese companies remained an important driver of global mergers and acquisitions activity in 2014. Spending on technology, financial services, real estate grew fast, although spending in natural resources fell sharply.

Growth in FDI also slowed from 5.3 percent in 2013, and was the weakest in two years, indicating that the economic cooldown and shifting composition of the Chinese economy are starting to temper foreign sentiment.

Investment flows into China are an important gauge of the health of the world economy and is also a good indicator of where capital is flowing within the country.

LESS MANUFACTURING, MORE SERVICES

China's outbound investment in the service sector rose 27.1 percent last year, while investment in the mining sector fell 4.1 percent, he added.

The data showed that the government-led shift away from investment-heavy industries toward services and consumption is taking hold with service sector FDI increasing 7.8 percent, while manufacturing FDI declined 12.3 percent.

Services made up 55.4 percent of overall FDI, with manufacturing taking up 33.4 percent.

Total FDI in December leapt 10.3 percent from the same month in 2013 to $13.32 billion.

Investment from South Korea rose 29.8 percent year-to-date, the fastest in 2014, followed by Britain with 28 percent growth. Japanese FDI fell 38.8 percent while EU investment declined 5.3 percent.

Data next week is expected to show China posting its lowest annual gross domestic product growth in 24 years.

The central government has acknowledged that GDP will slow as it seeks to reform the economy and find new engines of growth, all while navigating the risks of a cooling property market, excess factory capacity and sluggish investment.

(Additional reporting by John Ruwitch in Shanghai; Writing by Judy Hua in Beijing; Editing by Shri Navaratnam)