China Pforms From Creditor Country To Debtor Country

In recent years, FDI

In April 1st, the state

The core of the amendment of the foreign exchange bureau is to refer to international standards and consider the retained earnings of foreign direct investment (FDI) in the Chinese market, taking into account the balance of payments.

This has raised the question of FDI retained earnings that has not entered the mainstream for a long time.

According to the foreign exchange bureau's international investment position table, by the end of 2009, the cumulative balance of FDI has reached US $997 billion 400 million, which is close to US $1 trillion.

The US $1 trillion foreign assets in China generate high profits every year, and most of these profits have not been remitted to China, but retained in China.

Because of its operation in the Chinese market, the FDI profit is in the form of RMB, and has become a hot money in the mainstream.

As for the problem of FDI's retained earnings in China, it has become a "dark matter" to observe China's economy because it has not entered official statistics and its scale has become increasingly large.

With the adjustment of the balance of payments between 2005 and 2010, the "dark matter" began to emerge.

The great energy of "dark matter" will change many of our qualitative knowledge as soon as it emerges.

Dark matter is a physical concept. It refers to substances in cosmology that do not emit any light and electromagnetic radiation. People can only learn about the existence of a lot of dark matter in the universe through gravitational effects.

In China's economy, uncounted FDI retained profits, regardless of their size or their statistical characteristics, can be defined as "dark matter" of China's economy.

The foreign exchange bureau returned to the international standard and revised the statistics. The scale of the "dark matter" raised was 210 billion yuan or 1 trillion and 400 billion yuan.

The ownership of these funds belongs to FDI, but the form is RMB.

According to the rules of balance of payments management, this part of RMB funds can be converted into foreign currency without conditions and withdraw.

Scale of "dark matter" adjustment

The foreign exchange bureau released the 2010 balance sheet according to the new standard, and adjusted the balance sheet for 2005 ~2009.

In accordance with the revised principles of the foreign exchange bureau, this amendment is "in accordance with international standards, the foreign investment enterprises will be credited to the foreign direct investment in the balance of payments account for the undistributed profits attributable to the foreign party and the profits that have not been remitted."

And because the undistributed profit and the distribution of non remitted profits are in the form of RMB, the RMB profits attributable to FDI will be converted into the US dollar in the balance of payments.

According to the latest release and adjusted data, the total net inflow of FDI in China in 2005 ~2010 reached US $875 billion 800 million.

In 2005, the total inflow of ~2009 increased by 169 billion 100 million US dollars.

According to the April 1st exchange rate released by the report, the increase is partly equivalent to 1 trillion and 100 billion yuan.

Among them, the 2010 figures are the revised figures published directly. If the former is calibrate, the author estimates that the annual FDI inflow will be reduced to US $40 billion to US $160 billion.

This means that in 2005, the cumulative scale of the 6 years of ~2010 should be around us $210 billion (US $169 billion 100 million plus about US $40 billion).

The total scale of repair is about RMB 1 trillion and 400 billion yuan.

This is the scale of the "dark matter" raised by the foreign exchange bureau, which is revised to the international standard and the revised statistics. It is 210 billion yuan or 1 trillion and 400 billion yuan.

The ownership of these funds belongs to FDI, but the form is RMB.

According to the rules of balance of payments management, this part of RMB funds can be converted into foreign currency without conditions and withdraw.

It should be noted that according to the foreign exchange bureau data, the scale of FDI inflow in China in 2010 was as high as 206 billion 800 million US dollars (42% higher than 2009), the outflow scale was 21 billion 700 million US dollars, and the net inflow scale was 185 billion 100 million US dollars (62% higher than that in 2009).

Of the $206 billion 800 million inflow, the financial sector entered the US $12 billion and the non-financial sector inflows to US $194 billion 800 million (of which the real estate industry was US $27 billion 100 million, an increase of 78%).

The FDI inflow of the BOP caliber is much higher than that of the Ministry of Commerce's FDI.

According to the Ministry of commerce data, 27406 new foreign-invested enterprises were newly approved in 2010, and the actual amount of foreign capital invested was 105 billion 735 million US dollars (up 17.44% over the same period last year).

It can be found that the $206 billion 800 million FDI of the balance of payments is nearly double that of the Ministry of Commerce in the US $105 billion 700 million (196%).

Accumulated in 2005 ~2010 6 years, with inflow scale calculation, the balance of payments caliber accumulative total inflows 968 billion 600 million US dollars, the Ministry of Commerce caliber is only accumulative total inflows 512 billion 700 million US dollars, the former is 1.89 times the latter.

At present, the balance of payments caliber is higher than that of the Ministry of Commerce, mainly because of the reasons for statistical caliber. The Ministry of commerce only counts the inflow of "three capital" enterprises and the external loans borrowed by enterprises, while the balance of payments caliber includes the projects of overseas parent companies' affiliation loans to overseas subsidiaries, overseas institutions to purchase domestic buildings and so on. Two is the new adjustment of FDI retained profits (undistributed profits and undistributed profits).

It can be said that the FDI statistics of the Ministry of Commerce, which is widely quoted in the market, have lagged behind the source and scale of FDI inflow.

In particular, the leakage of second retained earnings factors led to the formation of FDI's "dark matter" which is not widely discussed in China's economy.

How big is "dark matter"?

In fact, due to the accumulated FDI stock of nearly US $1 trillion, the scale of its annual profit has exceeded the new increment of FDI inflow.

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FDI retained earnings are still undervalued.

What needs to be emphasized is that the author thinks that the foreign exchange bureau has just opened a good way to uncover the "dark matter", but the assessment of the scale of FDI retained profits may still be underestimated.

An essential question of measuring FDI retained profits is FDI's return on investment.

We can initially estimate the net profit margin of foreign capital as an estimate of FDI's real return on investment in China.

In statistics, the net profit rate of foreign funded enterprises in Industrial Enterprises above designated size can be approximately replaced.

For example, according to the industrial statistics of the National Bureau of statistics, the net profit rate of foreign invested enterprises in the industrial enterprises above Designated Size from 2005 to 2006 is as high as 19%.

According to this rate of return, the investment income of FDI in China from 2005 to 2006 was 84 billion 900 million US dollars and 105 billion US dollars respectively.

Subtracting this data from the FDI investment income in the past balance of payments is the FDI retained earnings that have not been monitored.

According to this calculation, the FDI retained earnings from 2005 to 2006 were $63 billion 900 million and $75 billion 800 million respectively.

According to the latest adjustment of the foreign exchange bureau, the scale of retained profits in 2005 and 2006 was 38 billion 100 million US dollars and 46 billion US dollars respectively, about 60% of the above calculation.

According to the statistical yearbook of the National Bureau of statistics in 2010, the net profit margin of foreign-funded enterprises in the industrial enterprises above Designated Size in 2009 is about 18.6%.

According to this calculation, the FDI profit in 2009 amounted to 178 billion US dollars, after deducting the profit repatriation part of the balance of payments in the original caliber, it also saved about 115 billion US dollars.

But the foreign exchange bureau raised its retained earnings in 2009 for only 36 billion dollars.

I tend to think that this data is still underestimated.

How big is "dark matter"?

In fact, due to the accumulated FDI stock of nearly US $1 trillion, the scale of its annual profit has exceeded the new increment of FDI inflow.

For example, assuming that FDI has a domestic yield of 18%, its annual profit will reach US $180 billion, while the annual FDI inflow of profit without reconsideration will only be US $150 billion.

In essence, FDI has "deficit" effect.

Is "dark matter" potentially destructive to the security of international payments?

The answer is obvious, yes.

According to the international investment position table, the FDI balance at the end of 2009 was US $997 billion 400 million, even if it was calculated at 10% of the investment yield, its annual profit also amounted to about US $100 billion.

If foreign investors repatriate their profits every year, it means that China must maintain a trade surplus of 100 billion US dollars in order to maintain the balance of current account.

Due to the huge FDI balance, its annual profit scale is large enough to have an impact on China's balance of payments security.

On the balance of payments statement, we will soon see that the so-called "FDI net deficit effect" appears, that is, the annual FDI new inflow is less than the annual non remittance profit.

This will be the beginning of FDI's reversal of the balance of payments.

The author believes that the current balance of payments is still underestimating the scale of FDI retained earnings.

This reversal effect has actually arrived.

What is more noteworthy is that in recent years, the repatriation of FDI profits has shown a sharp rise. When the appreciation rate of RMB is in place, it is bound to usher in a large repatriation of FDI retained profits. At the same time, because of its huge scale and unrestricted nature, it will bring impact to China's balance of payments security.

Why are China's huge overseas assets so low, while the cost of external liabilities is high?

This is due to the fact that China's external assets are mainly foreign exchange reserve assets, while external liabilities are mainly high cost liabilities such as FDI.

The foreign exchange bureau only adjusted the retained earnings of FDI, which changed the net income of China's foreign investment.

2009: net profit of US $1 trillion and 800 billion is only US $100 million.

Just one adjustment of FDI retained earnings has allowed us to reassess China's overall external assets gains.

When I just released the balance of payments in 2005 in 2006, the author has cheered and wrote a commentary. "12 years of net capital investment and return on investment will eventually turn right."

The article depicts that in 2005, China finally ended the dilemma of "net capital investment abroad", which has lasted for 12 years from 1993 to 2004, but its investment income is negative.

According to the balance of payments at that time, China realized a net inflow of investment of US $9 billion 100 million in that year.

But according to the foreign exchange bureau's recollection adjustment of the balance of payments in 2005 ~2009, the time for "cheering" should be postponed to 2007.

According to the latest adjustment, China's net foreign investment income remained negative in 2005, -176 billion, and -74 billion in 2006.

For the first time in 2007, the net income was $3 billion 500 million, net income in 2008 was $11 billion 300 million, and net income in 2009 was $100 million.

But is it worth cheering?

Take a look at the position assets of such a scale of net investment income. According to the foreign investment position table, in 2007 ~2009 were 1 trillion and 190 billion US dollars, 1 trillion and 490 billion US dollars and 1 trillion and 820 billion US dollars respectively.

That is to say, in 2009, China's investment in foreign net positions of up to US $1 trillion and 820 billion accumulated a net income of only US $100 million, with a yield of only 1.82 1/10000.

More abundant data is that in 2009, China's external financial assets amounted to 3 trillion and 460 billion US dollars, the investment income earned 99 billion 400 million dollars in that year, and foreign financial liabilities amounted to US $1 trillion and 640 billion. In the year, the investment income was paid to US $99 billion 300 million; the net income of US $1 trillion and 820 billion investment position was US $100 million.

Why are China's huge overseas assets so low, while the cost of external liabilities is high?

This is due to the fact that China's external assets are mainly foreign exchange reserve assets, while external liabilities are mainly high cost liabilities such as FDI.

The foreign exchange bureau only adjusted the retained earnings of FDI, which changed the net income of China's foreign investment.

In fact, according to the author's understanding, if FDI retained earnings are still undervalued, it can be asserted that even if China currently has a net foreign investment of 2 trillion US dollars, the overall foreign investment income may still be negative.

The historical cost method of US $1 trillion FDI has accumulated a huge amount of "market value" in China, plus its accumulated profit, which constitutes the "dark matter" of China's national balance sheet.

At present, academic institutions are trying to compile China's international balance sheet, which will start to assess the market value of FDI assets.

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Market valuation of FDI stock

Another deeper question is whether China has the status of a net creditor country.

Similar to FDI's retained earnings, the "dark matter" in another direction of its larger size is the valuation of FDI's domestic assets in China.

For various reasons, the FDI balance on the balance sheet of China's current balance sheet is considered by the historical cost method.

In the United States and other countries, the statistics of FDI are "market value law".

In almost all accounting statistics systems, the "historical cost law" has long been displaced from the development of the times, but this method is still used in the FDI project of China's foreign investment position sheet.

There are many statistical problems. Considering comprehensively, although some foreign investment enterprises fail to operate, the successful operation of foreign investment enterprises in China can be seen. At present, the market value of domestic FDI is certainly greater than its historical cost.

The valuation of such market capitalization is very easy to assess if the invested enterprises of FDI are listed.

For example, in 2009, Bank of America [5.08 -0.78% shares of foreign strategic investor, Bank of America, substantially reduced CCB shares, accumulative cash and outflows of $10 billion 200 million, but in the year, the scale of investment in the US dollar was $3 billion.

This investment increment behavior of FDI is embodied in the promotion of FDI market value.

In addition, for example, when HSBC Holdings [83.80 0.12%] disclosed its performance in 2007, it pointed out that its investment in Ping An insurance, Bank of communications [5.99 -0.33% shares and other companies in China amounted to about $40 billion, but its investment was very small at that time.

HSBC's FDI market value in China is far from its "historical cost".

The historical cost method of US $1 trillion FDI has accumulated a huge amount of "market value" in China, plus its accumulated profit, which constitutes the "dark matter" of China's national balance sheet.

At present, academic institutions are trying to compile China's international balance sheet, which will start to assess the market value of FDI assets.

The assessment of the market value of FDI assets is very important. It will involve a major qualitative judgement. Is China the largest creditor country in the world?

Is China still a net creditor?

At present, the retained profits in China's FDI system have obvious speculative nature.

In addition, the experience of the Latin American financial crisis and the Asian financial [3.60 0.00%] crisis in the last century proved that FDI would also trigger a wave of withdrawal during the crisis.

For the security considerations of the national balance of payments, it is a "black swan" that has to be considered.

Worries about China becoming a debtor country

According to the current international investment position table, in 2009, China's net foreign assets amounted to US $1 trillion and 800 billion, but FDI was assessed at historical cost by US $997 billion 400 million, that is to say, if FDI assets were assessed by the "market value method" and assessed at US $2 trillion and 800 billion, then China would become a debtor nation from the largest creditor country in the world today.

Judging from the extension of FDI's valuation in some cases, I don't think it's alarmist to draw the conclusion.

In fact, in order to consider the security of China's balance of payments, it is urgent to assess the market value of FDI.

In international capital flows, FDI is often considered to be stable and non speculative.

However, the retained profits in China's FDI system have already had obvious speculative nature.

In addition, the experience of the Latin American financial crisis and the Asian financial crisis in the last century proved that FDI would also trigger a wave of withdrawal during the crisis.

For the security considerations of the national balance of payments, it is a "black swan" that has to be considered.

As the end of this article, what we want to ask is, if we pass the valuation of FDI market value, how much impact will we bring to China's understanding of China's external net creditor countries, and what changes will it bring to China's assessment of its own economy?

The discussion of this issue also involves a hot topic of policy.

At present, China is keen to create an international board and is trying to allow more foreign direct listings in Chinese companies.

If the international board finally takes place, it will be the best market for FDI to get a high premium in China, and the market value of FDI will also be clearly assessed.

The question is whether or not it has been calculated that if FDI carries out a capital market premium from US $1 trillion in the calculation system of China's international balance of payments to 2 trillion US dollars, 3 trillion dollars or 5 trillion dollars, or even higher, what will be the change of China's foreign investment position table, national balance sheet and the appropriate scale assessment of the central bank's foreign exchange reserves?

(the writer is director of the first financial daily review department).

Related correlation

FDI: Foreign Direct Investment means FDI.

The International Monetary Fund defines it as the investment of a country's investors in the production or operation of other countries and the control of certain investment rights.

FDI is one of the main forms of modern capital internationalization, and multinational corporations are the main form. The definition of the essence of FDI is still controversial.

Japanese scholars believe that FDI is the international pfer of enterprises' special business resources within the enterprise. Another Japanese scholar, Xiao Dao Qing, believes that FDI is based on technical expertise in management and management.

Australian scholar A.G. and Locht A.L. believe that FDI refers to the establishment of a branch of a company in another country, or the control of an enterprise in the country.