It is time to discuss China’s growing exports of capital in more depth. Lenin listed “the growing importance of the export of capital” as one of his defining characteristics of capitalist-imperialism. So this is a very important topic to seriously investigate when considering whether or not China is an imperialist country.
Foreign Direct Investment (FDI) is the acquisition by corporations of one country (whether state-owned or “private”) of real assets in another country, such as factories, mines, or businesses. These assets may be acquired by building new factories, etc., or by simply purchasing existing factories and companies. FDI does not include the purchase of foreign securities (e.g., stocks and bonds), unless this amounts to buying a major or controlling influence in the foreign company that issues these securities. (The usual guideline is that ownership of more than 10% of a foreign company is considered to be FDI.)[1]
Thus China’s huge foreign exchange reserves invested overseas and outward foreign “portfolio investment” (i.e., in foreign corporate stocks and bonds, etc.), now amounting to well over $1.2 trillion dollars in U.S. Treasury Bonds alone,[2] along with similar investments in Europe and elsewhere (though on a smaller scale), is not counted as outward FDI. But it nevertheless is a form of the export of capital! (As Lenin pointed out in the case of France’s massive loans to Tsarist Russia in the pre-revolutionary period, that was still an export of capital which he said could be termed “usury imperialism”. See section 5 above.)
This means that China’s actual export of capital is vastly larger than most commentators are assuming when they consider only outward FDI! In fact, at this time, by far the largest part of China’s export of capital is in the form of investments in foreign securities (including U.S. Treasury bonds), rather than in the direct purchase of foreign companies. (The clear trend, however, is for a growing proportion of China’s capital exports to be in the form of FDI rather than merely in things like foreign reserve investments and portfolio investments.)
It is often pointed out that the amount of inward FDI into China from foreign imperialist countries far surpasses outward FDI from China to other countries, and this fact is used to argue that China is “on balance” not an international imperialist exploiter, but rather still a country which is more the victim of foreign imperialist exploitation. There are several deep flaws in this argument.
For one thing, if country A exports some of its capital to country B and thus exploits the working class there, while country B exports some of its own excess capital to country A and thus exploits the workers there, then both of them are engaged in international imperialist exploitation—and not just the country whose exports of capital (or foreign profits obtained) are the larger of the two!
But the biggest flaw in that argument is that FDI is not the only form of exported capital, and thus not the only form of international imperialist exploitation. The total (cumulative) outward flow of capital from China greatly exceeds the total inflow if all forms of capital, including invested foreign reserves and portfolio investment, are considered. In other words there is in fact a net export of capital from China despite the huge and still growing foreign investment within China.
A concept used by bourgeois economists discussing all forms of international capital imports and exports, and adding in all foreign assets and subtracting all forms of foreign financial “obligations”, is the International Investment Position (IIP) for a given country at a given time.
Figure 14.1: China’s International Investment Position, 2004-2012[3]
As of the end of June in 2011, China’s IIP stood at a colossal surplus of $2 trillion! Its external financial assets as of that date were $4.6 trillion, while its external financial liabilities at that time were $2.6 trillion. China’s reserve assets, including gold, IMF Special Drawing Rights, reserve position in the IMF and foreign exchange reserves, totaled $3.3 trillion. (This amounted to 71% of China’s total foreign financial assets at the time.) China’s cumulative outward FDI at that date was $329.1 billion. Its outbound portfolio investment (in both corporate stocks and bonds) was $260.4 billion. Meanwhile inward FDI into China stood at $1.6 trillion. Thus, at the end of June 2011, China’s actual total stock of capital exports stood at $4.6 trillion, and it even had a net International Investment Position of $2 trillion as of that time.[4]
Note that by subtracting the value of the inward FDI, inward portfolio investment, and other imports of capital into China, from China’s outward FDI, invested reserves, portfolio investment, etc., the concept of “International Investment Position” itself vastly understates the levels of China’s capital exports. True, its net export of capital was “just” $2 trillion at the end of June 2011, but its actual level of capital exports still totaled $4.6 trillion as of that date. The fact that the U.S. and other countries send their own excess capital to China, for example, does not actually diminish in any way the amount of capital that China exports to other countries. The fact that foreign countries exploit Chinese workers by sending capital to China in no way diminishes China’s own exploitation of foreign workers when it exports capital to other countries!
We should keep this difference between the actual level of capital exports, and the abstract bookkeeping balance known as “IIP”, in mind as we look at Figure 14.1 above, which shows China’s international investment position for the years 2004-2012.
Note first that China’s “net foreign assets” have been positive and quite substantial for this entire period, and have exceeded $1 trillion since 2007 and $2 trillion since mid-2011. Note also that China’s level of “net foreign assets” has continued to grow over this period, though its rate of growth has considerably slowed down during the last 5 years (the period of the “Great Recession” in the world). Note that the moving of capital into China and the export of capital out of China both continue to expand at a fast pace. And note especially that China’s total cumulative export of capital reached around $5 trillion at the end of 2012.
How does this compare to the United States? First of all, the U.S. net international investment position at the end of the first quarter of 2013 was a negative $4.277 trillion![5] (As compared to a positive $2 trillion for China.) What’s more, this US IIP figure is over $400 billion worse than just 3 months earlier! So from an IIP standpoint, China is far ahead of the U.S. (and in far better financial shape generally). It is also worth noting that according to Forbes (the U.S. business magazine) about 7.5% of U.S. government debt is now owned by China.[6]
However, we need to stress once again that the net IIP value is not the proper way to determine the level of exported capital for any country, whether that be the U.S. or China. Despite its very negative IIP, the U.S. still has a cumulative pile of exported capital totaling $21.618 trillion. However, foreign-owned assets in the U.S. totaled $25.896 trillion, which leads to the net negative balance of over $4 trillion in the IIP.[7]
China’s total exported capital, at around $5 trillion in 2012, is therefore still only about ¼ of that of the U.S. But it is nevertheless enormous, growing rapidly, and already in the same range as (or bigger than!) that of many other imperialist countries.[8]
Like China, much of the U.S. assets overseas are also not in the form of FDI. According to OECD figures only $5 trillion of U.S. overseas assets were in the form of FDI as of 2012.[9]
While outward FDI is only a small portion of total exported capital, it is nevertheless of particular importance and interest. So we’ll now investigate China’s outward FDI in more detail.
[1] This definition of FDI is taken from the Dictionary of Revolutionary Marxism, at: http://www.massline.org/Dictionary/FO.htm#FDI
[2] As of December 2013, China’s holdings of U.S. Treasury Securities were $1,268.9 billion. See: http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt In addition, companies in Hong Kong (which of course is now officially part of China) hold $158.8 billion in U.S. Treasury bonds. Further large holdings of U.S. Treasuries by Chinese companies or agencies are probably hidden in the category that U.S. statistics call “Caribbean Banking Centers” (i.e., the Cayman Islands, Bahamas, Bermuda, etc.), in order to avoid the payment of taxes. The $290.9 billion of U.S. treasuries these “banking centers” officially hold are actually owned by other major investors around the world, and especially in Hong Kong and China. Thus the actual total holdings by Chinese corporations and government entities of U.S. Treasury securities is now probably around $1.5 trillion.
[3] Source:Thilo Hanemann & Daniel H. Rosen, “China’s International Investment Position: An Update”, April 23, 2013, on the website of the “Rhodium Group”, at: http://rhg.com/notes/chinas-international-investment-position-an-update
[4] “China’s Net International Investment Position Hit US$2 Trillion in Mid-2011”, by China Briefing, posted Oct. 25, 2011, at http://www.china-briefing.com/news/2011/10/25/chinas-net-international-investment-position-hit-us2-trillion-in-mid-2011.html#more-14422
[5] Bureau of Economic Analysis report, June 25, 2013, U.S. Department of Commerce, online at: http://www.bea.gov/newsreleases/international/intinv/intinvnewsrelease.htm (as of June 28, 2013).
[6]http://www.forbes.com/sites/kenrapoza/2013/01/23/is-chinas-ownership-of-u-s-debt-a-national-security-threat/
[7] Ibid.
[8] It is, unfortunately, hard to find reliable estimates of the total exported capital for most countries, though figures about the stock of outward FDI are easily available for the OECD and G-20 countries.
[9] “FDI in Figures”, OECD, February 2014, Table 4, online at: http://www.oecd.org/investment/statistics.htm