Top 10 Countries for Chinese Investments

With $3 trillion in foreign exchange reserves and a growing need for resources to power its growth, China has been ramping up investments around the world. Net outward-bound foreign direct investment (FDI) by Chinese companies grew from $5.5 billion in 2004 to $68.81 billion in 2010.

But investments by Chinese companies have generated plenty of political backlash in some countries, and several big deals have fallen victim to regulatory concerns. In 2011 alone, $32.8 billion worth of investments proposed by China failed to be completed, according to the Heritage Foundation. That’s more than half the $60.1 billion in overseas deals made by Chinese companies last year, according to the Ministry of Commerce. Some notable failures include a $5.4 billion PetroChina deal in Canada and Bright Food Group’s $2.5 billion bid to buy French yogurt maker Yoplait.

The tide may be turning though for Chinese investors. The massive financing needs of its two biggest trading partners — the U.S. and Europe — could leave Beijing spoiled for choice as China plans to spends $560 billion in foreign investments over the next five years, according to Reuters.

With this in mind, we’ve put together a list of 10 countries that saw the largest net foreign direct investment (FDI) from China between 2004 and 2010, according to figures from China’s Ministry of Commerce.

See the original slideshow from CNBC.com.

10. Myanmar

FDI 2004-2010: $1.6 billion

Myanmar, with vast oil and gas reserves as well as mineral deposits, has been a big draw for Chinese companies. China is the top investor in the country once known as Burma, and is its second-biggest trading partner.

China’s foreign direct investment jumped since 2008. It grew more than 2 1/2 times from $92 million in 2007 to $233 million in 2008 before accelerating to $377 million in 2009 and then $876 million in 2010.

But the recent easing of sanctions against Myanmar by the U.S., European Union, Japan, Canada and Australia could prove to be stiff competition for China, which has invested in everything from infrastructure and hydropower dams to twin oil and gas pipelines to help feed southern China’s growing energy needs. China’s top three oil firms — CNPC, Sinopec Group and CNOOC — all operate in Myanmar, and China has pledged an additional investment of more than $14 billion in the 2010-2011 fiscal year.

According to Myanmar government figures, about 47 percent of total foreign investment in the country went to power generation, while 34 percent went toward oil and gas — Myanmar’s biggest export.

Pictured: Sagaing, Myanmar

9. Russia

FDI 2004-2010: $2.5 billion

Despite being neighbors, Russia ranks only ninth on the list of China’s top 10 destinations for foreign investments.

Chinese FDI in Russia more than doubled in 2005 to $203 million from $77 million a year earlier, and China’s investments gradually rose to $568 million in 2010. Chinese interests have ranged from energy to infrastructure. Some notable projects include China Huadian Corp.’s investment of $323 million in a joint venture with Russian firm TGK-2 OAO to build a thermal-electric power plant northeast of Moscow in 2011. That same year, China Chengtong Development spent $350 million to construct the Greenwood International Trade Center, which will be used to showcase Chinese products for the Russian market.

Last October, the two countries announced a joint Russia-China investment fund to promote direct investment in Russia. Sovereign wealth fund China Investment Corp. would invest $1 billion in the fund, and state-backed Russian Direct Investment Fund committed the same amount.

But investments between the two countries have been hampered by differences over energy supplies and competition for influence in Central Asia. Talks on a Russian pipeline that would supply gas to China fell apart last year when China opted for additional delivery from rival producer Turkmenistan. But things appear to be turning around after China announced last month that it had a new proposal for Russia on the gas deal.

8. Canada

FDI 2004-2010: $2.9 billion

China has been a big investor in Canada’s oil sands. The province of Alberta, whose oil sands give it the title of the largest oil reserves outside Saudi Arabia, has seen a lot of interest from Chinese energy firms.

Deals between China and Canada date to 2005, when Canadian energy firm Enbridge signed an agreement with PetroChina to ship oil through a planned Northern Gateway pipeline. The pipeline would be the first project to transport crude extracted from oil sands to the west coast of Canada so it can be shipped to Asia.

Earlier this year, PetroChina also became the first Chinese state-owned company to wholly own a Canadian oil sands development after it bought out its partner’s stake for $674 million. The project is expected to start producing 35,000 barrels of oil a day by 2014 at a cost of $ 1.3 billion.

Since July 2011, Chinese companies interested in energy have snapped up around $5.5 billion worth of Canadian assets . But despite all the moves by Chinese companies to get a foothold in the oil sands market, China currently imports no oil from Canada because of environmental hurdles. The Northern Gateway pipeline faces strong opposition by aboriginal and environmental groups. Regulatory hearings for the project began in January but could take years to make their way through Canadian courts.

Pictured: Tar Sands in Alberta, Canada

7. United States

FDI 2004-2010: $3.4 billion

Chinese direct investment in the U.S. has been growing rapidly, nearly doubling in 2009 to $909 million from $462 million a year earlier and reaching $1.3 billion in 2010. But China is still a relatively minor player when it comes to FDI in America. Up to 95 percent of FDI in the U.S. comes from Europe and Canada.

By comparison, U.S. companies invested $3 billion in China in 2011. Chinese companies have been wary of investing in the U.S. because of the political outcry caused by some previous high-profile deals such as state-owned oil company CNOOC’s unsuccessful bid to acquire Unocal in 2005.

Since then, Chinese oil giants have been tiptoeing back into the U.S. energy market by acquiring minority stakes in American oil projects like CNOOC’s 2010 $1.1 billion deal with Chesapeake Energy to buy a 33 percent stake in shale oil fields in South Texas. Earlier this year, Sinopec paid Oklahoma-based Devon Energy $2.2 billion for a one-third stake in a 1.3-million-acre drilling property in Ohio, Michigan and elsewhere. Both deals allow the American company to keep full operating control, along with control over sales of oil and gas from the wells to avoid a political backlash.

Pictured: Drilling rig in Texas

6. Singapore

FDI 2004-2010: $4.7 billion

As one of the Asia-Pacific’s key financial centers, Singapore has attracted growing Chinese investments in recent years.

China’s foreign direct investment in Singapore started picking up momentum in 2007, with investments more than doubling to $398 million from a year earlier. China’s FDI in Singapore peaked at $1.55 billion in 2008 before falling to $1.1 billion in 2010.

Last month, China Guangdong Nuclear Power Holding Corp. announced plans to build a $33.6 million biomass-solar power plant in Singapore by 2013, which is key to Singapore’s position as the gateway to the clean energy market in Asia. Singapore’s property market has also been an attractive place for mainland Chinese investors who have been restricted from buying property at home because of government controls. Chinese buyers made up 28 percent of all foreign purchases of private homes in Singapore in 2011, according to the international property consultancy Knight Frank. In an effort to curb rising property prices because of foreign interest, the Singapore government imposed an additional 10 percent stamp duty on foreign buyers last December.

Pictured: Solar panels on the Marina Barrage in Singapore

5. South Africa
FDI 2004-2010: $5.8 billion

Africa’s largest economy exports $5.5 billion a year in minerals to China, which is also South Africa’s biggest trade partner. In September, China agreed to $2.5 billion in investments for South Africa’s "geology and mineral resources."

China’s foreign investments in South Africa peaked at $4.8 billion in 2008 — the same year the world’s biggest lender by market cap, ICBC bought a 20 percent stake in South Africa’s Standard Bank for $5.5 billion. The move was an astute investment for ICBC as Standard Bank advised on about 30 percent of the $5 billion in mergers and acquisition activity between China and Africa in 2009.

South Africa also acts as a gateway for China's investments in Africa. China's government has funded and helped build infrastructure projects for cash strapped African governments in return for access to mines and minerals. China lent $4.5 billion in 2007 to infrastructure projects in Africa, according to the World Bank.

Pictured: Diamond mine in South Africa

4. Australia
FDI 2004-2010: $6.97 billion

China is Australia’s top trading partner. Chinese appetite for the country’s natural resources has made Australia one of the biggest recipients of Chinese foreign investment.

China’s FDI in Australia increased significantly after 2007. Net FDI from China doubled from $531.6 million in 2007 to $1.9 billion in 2008. Despite the global financial crisis, Australia saw another $2.4 billion in FDI from China in 2009. That same year, the Australia government changed its investment rules to limit Chinese investments in local mining companies, according to confidential U.S. embassy cables leaked by Wikileaks. The move came after China’s state-owned Chinalco was denied an 18 percent acquisition in mining giant Rio Tinto for $19.5 billion.

China’s interest in other parts of the Australian economy have also raised tensions in both countries. In March, Australia blocked China’s Huawei Technologies — the world largest telecom company — from bidding for contracts in the country’s $38 billion high-speed broadband network due to undefined security concerns. The ban led to discussions between the two governments with Australia pointing out that China has also been reluctant to open its markets to Australian investments. Despite the disagreement, the two countries signed an agreement in April on stronger cooperation on infrastructure, which could allow more Chinese investment in Australian projects.

3. British Virgin Islands
FDI 2004-2010: $13.9 billion

Chinese companies have been increasingly using subsidiaries in the British Virgin Islands to make offshore investments while retaining a zero tax status.

For a country with a population of about 30,000 people, the British Virgin Islands are home to some 457,000 companies. Some notable Chinese firms that have subsidiaries in the territory include telecom giant China Mobile, social network SINA and automaker Geely, according to Reuters.

In the past, the income and gains of British Virgin Island companies were not subject to taxes by Chinese authorities because their transactions were confidential. China’s FDI in the British Virgin Islands jumped a whopping $4.5 billion from 2009 to $6.12 billion in 2010. The territory also received about 22 percent of the $7.3 billion in Chinese FDI for Latin America in 2009.

In December 2009, the two countries signed a tax information exchange agreement in which Chinese officials could obtain information from the British Virgin Islands on the ownership of companies, allowing them to tax transactions and earnings.

Pictured: Coast of British Virgin Islands

2. Cayman Islands
FDI 2004-2010: $27.3 billion

China’s FDI in the Cayman Islands has varied over the seven-year period, jumping as high as $7.8 billion in 2006 before falling back to $3.5 billion in 2010.

Of the $7.3 billion of Chinese FDI for Latin America in 2009, 73 percent was invested in the Cayman Islands. According to experts, a majority of money invested by foreign companies in tax havens such as the Cayman and British Virgin Islands is to take advantage of tax breaks.

The practice, known as “round-tripping”, makes it difficult to know the exact amount of Chinese investments abroad and allows large investments by state-owned firms to be hidden.

The Cayman Islands have followed the British Virgin Islands by signing a tax information exchange agreement with China in September 2011 to disclose the names of Chinese owners of local firms, but the agreement has yet to be put into effect.

Pictured: George Town, Cayman Islands

1. Hong Kong

FDI 2004-2010: $139.5 billion

Hong Kong is the number one destination for China’s foreign investments — far eclipsing investments made in any country worldwide. China’s interests in Hong Kong may not be surprising considering its proximity to the mainland, low tax rates and its status as a Chinese territory.

China’s FDI in Hong Kong saw a huge jump in 2007 rising to $13.7 billion, nearly double the $6.9 billion in 2006. 2007 was the same year that the Chinese government started to allow mainland citizens to invest in the Hong Kong’s stock market, which was the most significant move by authorities to date, to remove barriers that prevented most Chinese from making international investments. China’s FDI in Hong Kong peaked at $38.64 billion in 2008 before falling to $38.5 billion 2010.

Beijing has supported Hong Kong’s role as an offshore trading hub for the renminbi. Last August, Chinese authorities announced measures such as allowing mainland companies to raise up to $8 billion in dim-sum bonds in Hong Kong. It coincided with the Chinese government’s issuance of $3.1 billion in dim sum bonds in Hong Kong.

Chinese investment in Hong Kong’s real estate market has also been growing. Mainland Chinese buyers accounted for 25 percent of all prime market purchases in 2011, according to Knight Frank, despite recent curbs by the Hong Kong government.

Pictured: Hong Kong's Harbor