The Chinese President Xi Jinping announced $64 billion in new deals for the plan to develop transport and infrastructure projects linking Asia, Africa and Europe [China's BRI should be positive for commodities, but evidence is elusive]. This promise breaks with the trend ascertained by the OECD. China reduced its FDI outflow (Foreign Direct Investment) for the second consecutive year. In 2016 China's FDI outflow was $216 billion, in 2017 this was $138 billion, and in 2018 this outflow amounted to $96 billion [Global FDI drops 27% in 2018 following the US tax reform]. The author is not quite convinced that the aforementioned commitment had an impact on the commodity prices. Be that as it may, the US and China are the biggest recipients of FDI inflow, $207 billion and $203 billion respectively.
In order to get a better picture of the global economy and in its periphery the geopolitical landscape, one must also look at the current global powerhouse. The OECD ascertained that the United States (US) had negative FDI outflows for the first time since 2005, roughly $48 billion -/- (2018). In 2017 the OECD reported US FDI outflow of $316 billion. Grosso modo, FDI outflow means (according to the OECD) the increase of investments by in this case US investors minus any transactions that decrease investors made in foreign economies with an affiliate in a foreign economy. Basically, this means purchasing of equity and reinvesting earnings in the foreign economy. Of course, these numbers need to be verified with other international actors, e.g. UNCTAD, World Bank and IMF.
The reasoning behind this is that US multinationals repatriated large amounts of earnings held by foreign affiliates. The US Tax Cut and Jobs Acts (TCJA) of 2017 could be an incentive for this trend. In the fourth quarter of 2017 the US levied a one-time tax on undistributed foreign earnings. This led to the repatriation by US multinationals of the cash held by foreign affiliates [U.S. Corporations' Repatriation of Offshore Profits]. This measure was already executed in 2005, and in accordance to the US treasury: [...] “many used the repatriated funds simply to repurchase stock or pay dividends” [Just the Facts: The Costs of a Repatriation Tax Holiday].
According to the Rhodium group, Chinese FDI inflow to the US dropped from $29 billion (2017) to $4.8 billion (2018) [China’s foreign direct investment into the US dropped precipitously in 2018, data show]. The group claims that $13 billion has already been divested in US assets by Chinese investors. Another $20 billion worth of divesture is pending. Some examples: Anbang is looking to 'unload' a luxury hotel collection worth $5,5 billion, Chinese owners (via Fosun) are selling (part of) their stake ($1.6 billion) in 28 Liberty, Wanda Group wants to sell its stake in Legend Entertainment. Coincidentally, these Chinese groups have been put on a watch list by the Chinese government for amongst others an investigation into suspected economic crimes [China's latest conglomerate crackdown casts dealmaking shadow]. Some of the corporate executives have reportedly been detained as part of the regulatory crackdown on corruption.
An outsider can't foresee what the next move might be given the complex nature of BRI. Nonetheless, emerging patterns might provide an indication of where the importance of the BRI is at the moment and perhaps one might even ascertain where the BRI is heading. In the words of 'The Great One': "Skate to where the puck is heading, not where it has been!"
A. Cikmazkara
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