Two entries to my "amazing statistics about China" colleciton:

• For the 1st quarter of this year, China received US$14.25 billion of foreign direct investment (FDI). That's twice what India receives in a year and about 6.4% more than last year. The majority of them come in the form of merger and acquisition (M&A) activities. Last year, China enjoyed US$60.33 billion of FDI. About 2.7% of its US$2.23 trillion GDP, the 4th largest of the world.

• By the end of February, China has amassed US$853.6 billion of foreign exchange reserves. Overtaking Japan, it is now the biggest in the world.

Now that's lots of outside money. They burn.

At the same time, the "economic patriotism" wave seems to be gaining momentum. "If China lets multinationals' malicious mergers and acquisitions go ahead freely, China can only act as labour in the global supply chain," said Li DeShui (李德水), former¹ National Bureau of Statistics (国家统计局) Commissioner. "Chinese brands and the innovation ability of the national industry would disappear gradually and core parts, key technologies and high added value of China's leading enterprises might be completely controlled by multinationals." That's harsh words noticed by many, including myself.

Those who are about to cry violation of capitalist spirit please first examine US government's block of CNOOC's US$18 billion bid for Unocal last year. The protectionists worried about "national security." Can you blame China having the same worry?

The Ministry of Commerce (商务部) and the National Development and Reform Commission (国家发革委) are the gatekeepers of FDI activities. They can throttle M&A effectively. Carlyle Group's landmark 3 billion yuan (US$370 million) takeover of Xugong Group (徐工）, China's largest construction equipment maker, has been stalled. Caterpillar is also facing delays to buy into Xiamen Engineering Machinery （厦鑫机械）. The writings are on the wall.

If China has amassed so much forex exchange and been receiving so much FDI, but large scale M&A activities are to slowed down, then where will all the money go?

Personally, I don't believe the M&A can slow down. What China is protecting are few prized industries or enterprises — such as heavy industry machinery and automobile manufacturing. Retail, banking, construction, service sectors seem pretty free-for-all.

In addition to M&A, there are two sure channels to ease the money pressure: the appreciation of the currency, and the opening of overseas investment. We have all seen MB appreciating more than 3% in less than a year. The trend is not stoppable, MB will continue to rise against US dollar.

They are about to allow financial institutes to invest overseas. This means individuals can do so indirectly. This is a big step toward the Qualified Domestic Institutional Investors (QDII) scheme. Individuals can now buy US$20,000 foreign assets, quite an increase from the previous US$8,000 cap. The practical removal of the cap shall come in the near future.

Step by step, we are witnessing China becoming a mature player in world economic stage. They are clearly gaining confidence and becoming comfortable with their influence and new wealth.

¹Mr. Li DeShui retired last month (March 16th, 2006) from National Bureau of Statistics.