News Digest: Banking on FDI

Related entries: General, Investment, News

According to a new UN report, Foreign Direct Investment (FDI) in China rose from US$54 billion in 2003 to a record US$61billion in 2004 – making it the third largest investment destination in the world after the US (US$96 billion) and the UK (US$78 billion). While investment in traditional sectors has continued, there has been a dramatic increase in inflows from the financial sector investors, including banks, insurers and private equity groups.

At the end of 2003, foreign equity stakes in Chinese banks were just US$500 million, or about 1 percent of total banking assets. Since then (and with the impetus provided by opening of the banking sector under the WTO schedule) over US$13 billion has been invested – by the likes of HSBC, Standard Chartered, RBS, Bank of America and Temasek. It is estimated that foreign financial groups will own around 17 percent of the Chinese banking sector by 2007.

On the private equity front it has been reported that, in the eight months to August this year, US$2.3 billion was invested, against $2.06 million in the whole of 2004. The latest significant deal to be reported was by Carlyle which, with its US$375 million investment in Xugong Group Construction Machinery, has become the first foreign private equity group to take majority control of a Chinese state-owned business. With returns of 25 percent or more over the past two years in Asia, it is thought that buyout groups have allocated funds of around $10 billion (which could increase to US$80 billion when leveraged by debt) for investment in the region in the next few years.

See related articles:

    Foreign investment in China tops $61bn
    CCER / Financial Times
    … FDI flows into China rose from $54bn in 2003 to a new high of $61bn in 2004, making it the third largest investment destination in the world after the US ($96bn …

    Foreign capital pours into China’s banks
    Asian Tribune – Bangkok,Thailand
    When China joined the World Trade Organization (WTO) in 2001, Beijing agreed to open up its banking system to foreign investors by the end of 2006. …

    Carlyle investment is a first for China
    Telegraph UK
    Carlyle has become the first foreign private equity group to secure majority control of a Chinese state-owned business

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