China's average investment return on its foreign assets is much lower than the return China pays to foreigners on their investments in China. As a result, China's net foreign factor income as a percentage of its gross national product has hovered around zero for a long time. China should devise a strategy to promote outbound non-governmental investment as part of the effort to improve the composition of its foreign assets.

In 2013, China's reserve assets accounted for 65.4 percent of its foreign assets while non-reserve assets (that is, foreign assets held by the non-government sector) comprised a bit over 30 percent. A comparison with other countries shows China's 65 percent reserve assets proportion is very high. This proportion is about 17 percent in Japan and only 2 percent in the United States and Germany. That means the proportion of foreign assets held by the non-government sector is more than 80 percent for Japan and over 90 percent in the US and Germany.

This explains why China's net investment income (investment return on foreign assets minus investment return paid on foreign liabilities) is low: the majority of China's foreign assets are in foreign reserves which emphasize the principles of liquidity and safety. To the contrary, non-governmental investments, of which a major part are FDI and equity portfolio flows, can deliver a much higher return on a long-term basis, but unfortunately account for an insignificant portion of China's foreign assets.