China received US$72.4 billion of inward market-seeking FDI in investors' quest to reach new customers. 

The 13% increase recorded for China is partly related to changes in the methodology underlying Chinese FDI statistics – 

for the first time data on Chinese inward FDI include inflows to financial industries. In 2005, non-financial FDI alone was 

US$60 billion, and it registered a slight decline after five years of increase. FDI into financial services surged to 

US$12 billion, driven by large-scale investments in China’s largest State owned banks. However, a significant share of 

China’s inward FDI from Hong Kong (China) might be the result of round-tripping.

China’s FDI outflows surged in 2005, reaching US$11 billion, driven mainly by some mega M&As in manufacturing and 

natural resources. 

Four regional clusters also helped in China’s economic growth. 

• The Pearl River Delta (PRD): Its Special Economic Zones of the 1980s progressed from attracting labour-intensive 

  assembly plants to becoming suppliers of important electronic components. 

• The Yangtze River Delta (YRD) has many high-tech companies as well as suppliers of basic materials such as 

  steel, chemical and petrochemical products and machinery in the automobile, 

  shipbuilding and aircraft industries. 

• The Bohai Rim is China’s largest R&D and production base for telecommunication products, as well as largest 

  production and marketing base for computer manufacturing. It is also China's leading distribution centre for 

  electronic goods and an application market for integrated circuits.

• China’s western region, the largest land mass in China that contributes only a fraction of its GDP, is striving to 

  attract more investments to take advantage of its abundant labour, rich natural resources and beautiful scenery.

In 2005, China’s foreign currency reserves increased by US$209 billion to reach US$819 billion, equivalent to 37% of the 

country’s GDP. Having exceeded those of Japan, they have become the world’s largest in 2006. Despite efforts at currency 

diversification, a major share of these reserves is still in United States dollars. In view of the relatively low returns and high 

risks associated with these “China dollars”, the Chinese Government is considering alternative uses for them.

In the 1980s, the rapid accumulation of foreign currency reserves in Japan led to a surge in Japanese outward FDI. A 

similar situation could arise in China in the coming years. Indeed, the pressure from the large and ever-increasing 

amounts of “China dollars” have made the promotion of outward FDI an imperative for the Chinese Government, leading it 

to adopt a “going global” strategy and take concrete measures to promote the internationalization of Chinese companies. 

Against this background, the strong growth in China’s overseas investment should continue in the coming years. China, 

ranked 17th in the world among outward investors in 2005, is likely to become an even more important source of FDI in 

the near future.