Cole Altom: Hi, I'm Cole Altom. I'm a deputy editor for client services here at Stratfor. With me today is John Minnich, our East Asia analyst. And we're here today in part to introduce a new premium product for global businesses, and it's called Compass. So John, as you know, the most recent issue of Compass focuses on China, specifically some of its new outward investment behaviors. And you can't really talk about those behaviors without talking a little bit about some of the economic changes going on inside China. Would you tell us a little bit about those changes?

John Minnich: Sure. So, what we're looking at with this issue of Compass is, is really this phenomenon we've been tracking, which is that over the course of the last decade, China has really emerged as a significant supplier of investment and capital to the global system. And what we see actually coming up in the next couple of years is that China's going to actually become a net supplier, so that's something that, I mean, it's a minor change but it's actually — it's historically significant because if you think about it for most of the past 30 years, China's been a major recipient of investment. Now China's becoming a major supplier. What's interesting, though, is that this is happening against not just a backdrop of China's economic growth, but of economic change within China. And that change is very significant. And what it comes down to is that China's in the process of moving from one economic model to another one. So for 30 years, the Chinese economy has been grounded in two pillars. Those pillars were low-cost exports — export-oriented manufacturing — and then more recently, state-led investment into housing construction, infrastructure development and whatnot. And that paradigm really shaped the nature of Chinese overseas investments over the last decade or so. So what we saw was, for instance, intensive investment, most of it in the form of investments by state-owned enterprises into large-scale mining, greenfield energy, these kinds of projects in places like Africa, Latin America, all around the world. Australia was a major recipient as well. What we're beginning to see now is that, as the Chinese economy moves towards rebalancing, as the government tries to move towards an economic model that's grounded not in investment into infrastructure construction but in domestic consumption or in value-added manufacturing, high-tech industries, that's having a kind of knock-on effect on the sorts of investments that companies, Chinese companies, are making overseas. What they're essentially doing is making investments that are geared towards meeting the needs of the new economy that the Chinese government is trying to build. 

Cole: Well, it sounds like they're maturing a little bit. So where is some of their money going now?

John: Well, so, two things that we've noticed with this shift that we're tracking in Chinese overseas investment is, is that one, as that, those investment patterns as you say mature, there's been a sort of, you know, a tentative, not complete yet, but there has been a shift in the geographic distribution of Chinese investment overseas. So for instance in the past, as I said we saw a lot of investment going into, you know, the global south — into Latin America, Africa. Now we see more of that investment going into places where, you know, Chinese companies think that they can get the technology they need, you know, for technology transfers to kind of realize some of these innovative changes that they want for their economy back home. So there has been a geographic redistribution, or there's a nascent geographic redistribution of Chinese investment overseas. But that's also gone hand in hand with another refocus, and that's been, you know as I said before, so, for most of the last 10 years that we've seen the rise of Chinese overseas investment, that investment has been driven by state-owned enterprises. And these are companies that, you know, up until now they've been making large-scale investments that oftentimes aren't exactly profitable. But what they do is they meet a very specific strategic need, an overt strategic need of the government. So we have an economy that's run on real estate, but we need iron ore to fuel that economy. If an economy that's run on exports, we need energy, we need various things to fuel that kind of economy. And what we're seeing now is, you know, not that there's been a decline in investment by state-owned enterprises, but that there is a rise in investment from private companies. So for instance, Alibaba, which has had the IPO, I mean, that's a good example. This is the kind of company that in the next paradigm of the Chinese economy, this is going to be representative. And it's making very different kinds of investments — investments into high-tech industries, information technologies — into the kind of things that will allow China to build an efficient, profitable economy.

Cole: So you talk about the geographic redistribution. Is that just a polite way of saying some countries are going to lose out big on some potential money they would otherwise get?

John: Well, that's very possible. I mean, it is the case that what we've seen over the last 10 years is the Chinese government, or Chinese state-owned enterprises, making various kinds of investments that, you know, although they meet strategic needs, they ultimately lose money. And that's something that the Chinese government is going to de-emphasize going forward. And what that means is that, you take a country like Venezuela. Venezuela has been a major recipient of, you know, what amount to no-strings-attached loans from the Chinese government. Or various countries in Africa — it's not going to be quite as extreme as Venezuela, but I mean the fact is that, you know, you will still see investment going into infrastructure development, rail development, but in the future these investments aren't going to be no strings attached. They're going to be focused on maximizing profitable. It's about exporting technology but also exporting technology in a way that makes money for the companies that are doing it. Now what that does mean, though, is that there will be some winners. North America probably emerges as the major winner because not only do you have massive energy resources, there's a lot of oil there, but more importantly, you have oil that's combined with highly innovative culture and very advanced technologies. And that's something that the Chinese government, Chinese companies are going to really target so that they can transfer some of that technology back home.

Cole: They haven't been able to develop it themselves, right?

John: Well, that's been a struggle for Chinese companies until now, is that, I mean, part of it is that China, you know, up until now really has lacked the kind of native atmosphere that it takes to produce what we tend to think of in the United States as very competitive, profitable and innovative companies. Now they are slowly moving towards that, and that's part of what these investments are about doing. It's about stimulating Chinese companies to be able to contribute to that process.

Cole: Makes sense. Well, I think that's all we have time for today. Thanks very much for joining us. If you want more information about Compass, you can visit us at Stratfor.com. Thanks a lot.

John: Thank you.