By Peter Cai
The head of China's central bank has signalled Beijing's readiness to permit more Chinese firms and private individuals to invest abroad.
Australia is already one of China's largest overseas investment destinations, with more than $70 billion worth of investment projects approved by the government to date. That tally is likely to swell if Beijing's policies on outflows are relaxed.
"China encourages more outflow of capital, Zhou Xiaochuan, governor of the People's Bank of China, told the Bo'ao Forum in China,. "We may further relax the restrictions on that and allow Chinese businesses and individuals to invest more easily abroad."
Mr Zhou's statement was echoed by a recent central bank policy document that encourages more Chinese investment abroad as "the shrinkage of western banks and companies has vacated space for Chinese investments."
The chief executive of China's largest commercial bank has also recently called for more investment from his country in the resource-rich regions of the world - primarily Australia, Africa and Latin America - in order to satisfy the demands of China's industrial machine.
More investment aboard may also reduce China's bulging foreign reserves and ease the pressure on Chinese yuan to appreciate against the US dollar, a source of constant conflict between Beijing and Washington.
As much as half of China's $3.2 trillion reserves could be channelled into foreign direct investment, said Guo Shuqing, chairman of the Securities Regulatory Commission, at a recent international finance forum in Beijing.
Caution
While encouraging Chinese firms to venture abroad, central bank chief Zhou also urged his countrymen to exercise caution when investing abroad. "Although we trade extensively and in large volume with many countries,.. our investors are not familiar with host countries' investment environment, legal systems, and financial markets," he said.
Chinese companies have reportedly lost billions of dollars from their investments abroad, including those in Australia. According to data from the Ministry of Commerce, these losses amount to more $US10 billion every year.
Chinese investors have reportedly suspended all new investments in magnetite projects in WA as of last year due to cost blowouts, according to the 21st Century Business Herald, citing a source from the State-owned Assets Supervision and Administration Commission. SASAC is the ultimate shareholder of the China's state-owned enterprises.
"Overseas investment is a double-edged sword, it brings enormous opportunities as well as risks. If we don't manage these projects carefully from the beginning, seeds of failure would have been sown. Consequently, the more we invest, the more we lose," said Wan Jifei, the head of the China Council for the Promotion of International Trade.
Mr Wan also reportedly told the Chinese press that Chinese investment abroad had developed too fast. The country overtook Japan and Britain in 2010 as the fifth-largest investor in the world while just a few years back, it barely featured on the investment rankings.