case. Figure 5 shows the evolution of the composition of assets and liabilities and compares them across regions.

Table 2b considers the net positions in each asset category at the end of 2004 – both China and India are “long in debt, short in equity:” these countries have positive net debt positions and negative net equity positions. As observed by Lane and Milesi-Ferretti (2006), this is currently a common pattern for developing countries. However, the scale of the asymmetry is striking, especially in China’s case.

Figure 6 shows China’s and India’s relative importance of the different components of the international balance sheets. Relative to other countries, one of the most notable features of China and India is their low levels of non-reserve foreign assets (also discussed in Lane 2006). According to the data compiled by Lane and Milesi-Ferretti (2006), China’s foreign portfolio and FDI assets amounted to $5.7 billion and $35.8 billion respectively at the end of 2004, while the figures for India were $0.95 billion and $9.6 billion, respectively. Relative to global stocks of foreign portfolio equity and FDI assets ($8.98 trillion and $12.55 trillion, respectively), these correspond to global shares of 0.06 percent (China) and 0.01 percent (India) in terms of foreign portfolio equity assets and 0.29 and 0.08 percent in terms of FDI assets.<sup>12</sup> As a benchmark, their shares in global dollar GDP are 4.7 percent and 1.7 percent, respectively, whereas they hold 16.0 percent and 3.3 percent of world reserves.

The relative insignificance of India and China as outward direct investors is also highlighted in UNCTAD’s World Investment Report 2005, which ranks India and China as 54th and 72nd out of 132 countries in terms of outward FDI over 2002-2004. This report also remarks that China had only five firms and India only one firm in the top fifty transnational corporations from developing countries over that period. While there is evidence of an increase in outward FDI during 2005 and the first part of 2006, it is clear that this is from a very low base.

Regarding global impact, Figure 6 shows that by the end of 2004 the FDI liabilities of China represented 4.1 percent of global FDI liabilities. Although this is broadly in line with China’s share in world GDP (in dollars), global shares are much lower for the other non-reserve elements of the international balance sheet. In portfolio terms, China and India are “underweight” both as destinations for international investors and as investors in non-reserve foreign assets (Lane 2006).

A salient characteristic in the bilateral patterns in FDI is the predominance of Hong Kong (China) and Mauritius as sources of FDI for China and India respectively (see Table 3a). This reflects the importance of these offshore centers as an entry point for direct investment into China and India. In fact, for China, more than fifty percent of FDI comes from offshore centers. As discussed in the next section, this also likely reflects roundtripping activities, by which domestic residents route investment through offshore entities in order to avail of the tax incentives and other advantages that are provided to foreign

> 12 It would be interesting to analyze a similar figure but using both foreign and domestically held assets as a benchmark. Unfortunately, good-quality data on the latter are not available.

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