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DatabankAugust 1 2013

China leads FDI charge into emerging economies

Foreign direct investment into financial services in certain emerging economies is raising eyebrows, spearheaded by China’s appetite for the South American market. 
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The trade corridors between Asia and Africa and Latin America have attracted much attention and coverage. As corporates chase business across national borders, financial institutions that serve them are usually not far behind. Despite the relatively low number of projects, investments into these regions’ financial centres are indicative of the growing financial ties between emerging economies.

Foreign direct investment (FDI) from Asia (excluding Japan) into Central and South America’s financial sector has grown significantly in value, with capital expenditure totalling $454m for the 12 months to May 2013. This figure is four times higher than the $112.8m recorded in the previous 12-month period. All four projects of the past year originated in China. The largest was China Construction Bank’s estimated $360m investment to set up operations in Brazil, Latin America’s largest economy. The bank also invested in Chile and Peru, while Chile also received investment from Bank of China.

Chinese banks have been eyeing up the Latin America market for some time. Although not classified as a greenfield direct investment, indicative is the Industrial and Commercial Bank of China’s acquisition of Standard Bank’s $600m-worth of Argentine assets in August 2011.

Asian FDI into Africa opposed the trend. Flows into the region dropped to $18.5m from the previous $56.4m. The majority of deals in the year to May 2012 were part of State Bank of India’s expansion plans in Africa, as India’s largest bank invested to open four new branches across South Africa to serve local corporates wishing to do business with its home country.

Investments from Latin America and Africa into Asia have been, unsurprisingly, much smaller. Projects included investments by vehicles based in offshore centres, as well as specialist insurance deals.

China leads FDI charge into emerging economies

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Silvia Pavoni is editor in chief of The Banker. Silvia also serves as an advisory board member for the Women of the Future Programme and for the European Risk Management Council, and is part of the London council of non-profit WILL, Women in Leadership in Latin America. In 2019, she was awarded an honorary fellowship by City University of London.
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