SINGAPORE - Singapore is the second most attractive destination for direct investments flowing out of China, ahead of Hong Kong, on a ranking of economies compiled by the Economist Intelligence Unit (EIU).
The US tops the list of high scorers on EIU's
China Going Global Investment Index, which balances opportunities against risk for Chinese foreign direct investment in 67 countries.
Leading in market size, the US also scored highly for its endowment of natural resources and holding the world's best stock of existing brands.
It is highly innovative, with high quality human capital and a relatively stable business environment, the EIU said.
Singapore and Hong Kong, though not large economies, serve as excellent bases for Chinese firms to access regional and global markets due to their good transport infrastructure and open economic policies, EIU said.
Its report quotes Xiaofeng Cheng, partner in charge of outbound investment at Chinese law firm Jingtian & Gongcheng, as saying that both Singapore and Hong Kong also have large Chinese communities alongside sufficient financial resources. Chinese entrepreneurs thus prefer incorporating a holding entity in either jurisdiction, as a platform for further outbound investment, Mr Cheng added.
Indeed, one of EIU's findings was that cultural differences pose an important risk to Chinese investors, even as investment outflows are fast closing in on the volume of inflows.
By 2017, EIU expects China to become a net investor globally.
Since outward direct investment (ODI) from China took off in 2005, annual outflows have grown at an average rate of 35 per cent a year, reaching US$115 billion in 2012.
Last year, China ranked third on the global ODI rankings, after US and Japan, up from 16th place in 2011.
As outward bound investment surges, EIU noted that the nature of these outflows is changing too.
While most of the ODI from China remains state-driven, that share is falling as more privately-owned firms begin to invest abroad.
Reflecting changes in investment motivations, China's ODI flows are now headed for a more diverse range of countries too.
While state-driven investments prefer resource-rich and developing countries, private players are more interested to tap new markets, and acquire new brands and technology, the report said.
Get The Business Times for more stories.