China as an international investor: in a class of its own

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China is in a “class of its own” among the BRIC group of fast-growing economic powers and will “replace the United States as the world’s largest economy by 2040,” says Markus Jaeger of Deutsche Bank Research in an August paper. BRIC also comprises Brazil, Russia and India.

The author underlines existing divergences between these countries’ economic strategies. 

These divergences are significant because the BRIC countries are to emerge as major international investors, while “China stands out in terms of size of external asset holdings and asset accumulation,” Jaeger explains. 

While China has adopted a strategy based on domestic savings, high investment, a competitive exchange rate and a manufacturing sector reliant on exports, Brazil, Russia and India are following different patterns, he explains. 

Russia’s approach is oriented towards commodity exports, while India and Brazil are both “closed economies” based on the growth of their domestic markets, says Jaeger. The difference between the two is that Brazil goes for a diversified growth strategy, whereas India pursues a strategy based on services. 

The paper emphasizes the BRIC countries’ strategy of introducing sovereign wealth funds to invest part of their holdings in higher-return assets. This, combined with an increase in external asset holdings, will make them “important international financial players”. 

China will emerge as a “net capital exporter” in the next ten years due to its large domestic savings and its export development approach,” says the paper. Jaeger thus concludes that in net international investment and “many other respects,” “China is already in a class of its own”. 

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