CROIC： ASEAN Countries Among Those with Most Potential

By Wang Fengjuan



CROIC： ASEAN Countries Among Those with Most Potential

By Wang Fengjuan

With growing economic might，China has become one of the most important players in international investment， and its enterprises have also accelerated the pace of going global. Recently， the Institute of World Economics and Politics of the Chinese Academy of Social Sciences issued its Country-risk Rating of Overseas Investment from China（CROIC） 2016， a report which has now been published for three straight years. It helps Chinese enterprises to reduce the risk of overseas investment and raise the success rate and sustainability of such investment.

Time to Go Global

In 2014， for the first time， China's total overseas investment surpassed inward FDI to reach US$123.1 billion， up 14 percent over the previous year； it maintained a double-digit growth in 2015. Since the Chinese Ministry of Commerce released annual authoritative data in 2003， China's overseas direct investment has kept rising without pause at an average annual growth rate of 38 percent. China's overseas direct investment fow in 2014 was 46 times greater than 2002；and its stock in 2014 stood at US$882.6 billion， rising from 8th to 5th in the world.

Along with China's economic transformation and upgrading and the growing competitiveness of Chinese enterprises， the latter's overseas investment will become even larger as the capital account is gradually opened.

Te growth of this investment is not only benefcial to Chinese economic restructuring but also makes a great contribution to world economic growth. China can provide certain guarantee funds and commercial loans through a number of channels to help some countries solve their fnancial difculties and restore their domestic industrial vitality. In the future， world demand for Chinese investment will surely continue to grow.

However， in the process， there are bound to be both opportunities and risks. To accurately identify and effectively respond to these， and do a good job in risk prevention， is the key to success.

Among the ASEAN countries， only Singapore is rated at a low risk level. The investment risk of Cambodia and Laos has declined to some extent， and most ASEAN countries are at the medium risk level.

CROIC Helps

China has been the world's third largest overseas direct investor in terms of flow of investment， maintaining strong growth momentum. However， it has not been a smooth process. Enterprises have confronted risk of failure in their overseas investment from time to time.

The CROIC 2016 assessment covers 57 countries holding 85 percent of China's overseas direct investment stock， including the Philippines， Cambodia， Laos， Malaysia，Myanmar， Thailand， Singapore， Indonesia and Vietnam in ASEAN （see table）.

Besides country risk of investment in sovereign debt， the rating system also focuses on the risk of Chinese enterprises in overseas direct investment. From the perspectives of overseas investment of Chinese enterprises and sovereign wealth， the research team has formulated five major indices - economic foundation， solvency， social resilience， political risk and the relationship with China，along with 41 sub-indices， to give a comprehensive and quantitative assessment of challenges facing Chinese enterprises， including war risk， risk of nationalization， risk of political change， risk from lack of guarantee by intergovernmental agreements， financial risk and a security review.

The index of relationship with China differentiates this rating system from other international risk rating systems， and is tailored to meet the specific needs of China's overseas direct investment. Take the index of degree of interference with investment as an example， Chinese enterprises have frequently encountered resistance when investing. For example， Sri Lanka reassessed a port project supported by China， and the Sino Iron Project saw a US$10 billion drop in value. Interference with the investment signifcantly increases the investment risk of Chinese enterprises， so good relations with China is an important alleviating factor.

Chinese foreign direct investment， a brief look Chinese foreign direct investment stock， 2014 Select ASEAN nations （in billions - US dollars）Investment risk among Belt & Road countries Top 25， ranked from AAA （least risk） to C （most risk）Rating Singapore Country$20.63 Region　Advanced economy？* Singapore　Asia-Pacific　YesAA Indonesia1 $6.792Israel United Arab Emirates 3LaosAsia-Pacific　Yes Asia-Pacific　No Europe　Yes A A A $4.49Czech Republic 4 Hungary 5 Europe　No A6Saudi Arabia Asia-Pacific　No A Myanmar$3.927Poland Europe　No A 8Kazakhstan A Asia-Pacific　NoCambodia$3.229Romania Europe　No BBB Bulgaria 10Europe　No BBB11Asia-Pacific　No BBBMalaysia Thailand$3.0712Indonesia Asia-Pacific　No BBB 13Russia BBB Europe　No14 Vietnam$2.86 Greece Europe　Yes BBB 15The Philippines BBB Asia-Pacific　NoSriLanka16Asia-Pacific　No BBB Malaysia$1.7817Turkey Europe　No BBB 18Cambodia BBB Asia-Pacific　NoPhilippines$0.7619Thailand Asia-Pacific　No BBB 20Iran Asia-Pacific　No BBB $5　$10　$15　$2021Uzbekistan Asia-Pacific　No BBB Pakistan 22Asia-Pacific　No BBB Chinese foreign direct investment （billions - US dollars）2324 India Laos Asia-Pacific　No Asia-Pacific　No BBB BBB 25Mongolia Asia-Pacific　No BBB SOURCES： 2016 CHINA OVERSEAS INVESTMENT COUNTRY RISK RATING REPORT， IMF　*AS DEFINED BY THE INTERNATIONAL MONETARY FUND （IMF）SOURCES： 2016 CHINA OVERSEAS INVESTENT COUNTRY RISK RATING REPORT， IMF *AS DEFINED BY THE INTERNATIONAL MONETARY FUND （IMF）

The rating result is divided into nine grades - AAA， AA， A， BBB， BB， B， CCC， CC and C. The AAA-AA grades mark low risk level； the A-BBB grades medium risk level； and BB-B grades high risk level. According to the general rating result （seen in the attached table）， the rating result of developed countries is generally higher than that of emerging economies， thus offering lower investment risk. All the top 10 countries are developed economies.

Potentials of ASEAN Economies

Germany， the United States and Britain are the top three. Among the ASEAN countries， only Singapore is rated at a low risk level. Te investment risk of Cambodia and Laos has declined to some extent， and most ASEAN countries are at the medium risk level.

According to the report， the economic foundations of emerging economies is relatively weak， and more unstable factors they have cause higher political risk， poor social resilience and greater differentiation in solvency， but they generally have more friendly relations with China. In the future， emerging economies are still the most promising destinations for China's overseas investment， in particular the investment seeking strategic resources and market and that in infrastructure.

In 2015， the overall economic growth of emerging markets slowed down， a situation which might last for a long period. During economic downturn， the emerging economies need to solve their deep-seated structural problems through continued reform. The emerging ASEAN economies feature weak economic foundations， single economic structure and， in particular， a serious shortage of infrastructure， so they urgently need external funds to promote the regional economic development. Tis is the basis for implementation of China's Belt and Road Initiative. However， their poor social resilience and solvency and high political risk add uncertainty to Chinese enterprises' overseas investment.

“In the future， China can exploit favorable factors of the countries along the Belt and Road and adjust the investment decisions according to the diferent risk levels of these countries，” said Zhang Ming， head of the research team.

Moreover， Chinese enterprises' own problems lead to some risks in the process of internationalization. Some of them have a low transnational management level and poor awareness of risk prevention， and lack core corporate competitiveness and international-experienced interdisciplinary talents for transnational management. Chinese enterprises should constantly improve themselves in making overseas investment and do a good job in assessment and prevention of investment risks.