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Building on China’s Overseas Investment

By HSBC Global Research

China is going global: its consumers are travelling abroad, its companies are buying resources from all over the world, and the government is finding new places to invest the country’s USD4trn of foreign reserves. As these trends continue, we think the “next big thing” will be China’s export of capital, especially to infrastructure investment projects in Asia and further afield.

China’s infrastructure boom in recent years has created an economy well suited to designing, building and servicing large infrastructure projects. Although we have argued that there is still plenty of room for China to keep investing in its domestic infrastructure, the peak may have already passed. As such, it makes sense for China to look to overseas markets to put all that capacity to use.

It may not have to look far. We estimate that Asia needs to invest USD11trn in urban infrastructure by 2030. In this report, we update our Asian Infrastructure Measure, and find that while infrastructure development in the region has increased, it is still far below US levels.

At the same time, funding gaps have emerged, especially in Indonesia, India and Thailand. To fill them, Asia may have to rely more on external funding as domestic sources become scarce. With a proposed USD100bn capital base, the China-led Asian Infrastructure Investment Bank (AIIB) offers an alternative source of funding for infrastructure in the region. Spending on infrastructure is essential for growth, so there is potential for a “win-win” situation: China helps to narrow Asia’s funding gap and in the process achieves its own policy objectives, including the internationalisation of the Renminbi.

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