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Historic and Emergent Trends in Chinese Outward Direct Investment

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Abstract and Key Results

  • Recent expansion of Chinese outward direct investment is analysed at two levels: at the aggregate level using Chinese Ministry of Commerce data and at the level of the individual FDI project using data compiled by the State Administration of Foreign Exchange.

  • Project level analysis reveals wholly-owned projects are increasingly displacing joint ventures as the predominant mode of entry.

  • Changes to the investment motivations are discernable in market-seeking FDI: with defensive and offensive FDI increasingly supplanting trade-related investment activity, and in strategic asset-seeking FDI: with improved access to foreign-owned technologies, brands, and distribution channels gaining importance.

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Notes

  1. We acknowledge, of course, inherent difficulties with generalising about a disparate collection of nations like the developing countries.

  2. Formerly, the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the Ministry of Foreign Economic Relations and Trade (MOFERT). For simplification, we refer only to MOFCOM in this paper. Also, SAFE has previously been the State Administration for Exchange Control (SAEC) and the State General Administration for Exchange Control (SGEC).

  3. Throughout this paper, the term outward direct investment (ODI) encompasses Chinese investment in minority-owned as well as majority and wholly-owned overseas affiliates.

  4. On the other hand, upgrading developing country firms may also be able to leapfrog obsolescent technology and to adopt state-of-the-art production and product technology because of low sunk investment costs (Vernon-Wortzel/Wortzel 1988).

  5. Although the precise mechanisms for the promotion of Chinese ODI activity remain sketchy.

  6. For example, the investment value ceiling has been raised to US$30mn from US$1mn for natural resources-oriented FDI and from US$1mn to US$3mn for non-resource and non-financial FDI for projects under the control of provincial authorities (Sauvant 2005).

  7. We owe these insights to a referee who we would like to thank for useful comments.

  8. In order to better approximate the universe, future econometric work on Chinese ODI should ideally strive to incorporate estimates of ‘round-tripped’ FDI, although lack of suitable data inevitably makes this a difficult task.

  9. Afghanistan (76 km of border with China), Bhutan (470 km) Burma (2,185 km), Hong Kong (30 km), India (3,380 km), Kazakhstan (1,533 km), North Korea (1,416 km), Kyrgyzstan (858 km), Laos (423 km), Macau (0.34 km), Mongolia (4,673 km), Nepal (1,236 km), Pakistan (523 km), Russia (northeast) (3,605 km), Russia (northwest) (40 km), Tajikistan (414 km), Vietnam (1,281 km). Source: The CIA World Fact Book.

  10. This is a contentious point, of course. The population of both the USA and Canada comprise a significant proportion of ethnically-Chinese people as does Australia, but to a lesser extent. It is likely that the presence of a large Chinese diaspora facilitates the internationalisation of Chinese firms, but in ways not well captured by models of inter-country psychic distance.

  11. It is an open question whether or not the Uppsala model is relevant to the internationalisation of smaller SOEs and private firms in China which invest outside of the formal approval process (and whose activities are thus not captured by the data reported here).

  12. To illustrate, The Economist estimates that 40 percent of global coal production and 30 percent of global steel production was consumed by China in 2003, while the British Independent newspaper of 7th Sept 2006 reported that 60 percent of African timber production is now consumed by China.

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Acknowledgements

We would like to thank three anonymous referees and Joachim Wolf for their constructive comments and insights that have greatly improved this paper as well as for the helpful comments of Hafiz Mirza on an early draft.

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Authors and Affiliations

  1. Leeds University Business School, University of Leeds, Leeds, United Kingdom.

    Peter J. Buckley (Professor of International Business and Director of the Centre for International Business (CIBUL),)

  2. Centre for International Business (CIBUL), Leeds University Business School, University of Leeds, Leeds, United Kingdom.

    Adam R. Cross (Director of the Centre for Chinese Business and Development (CCBD) and Senior Lecturer in International Business,)

  3. School of Management, Royal Holloway, University of London, Surrey, United Kingdom.

    Hui Tan (Reader in Strategy,)

  4. BNP Paribas, Hong Kong, China.

    Liu Xin (Head of Global Risk Solutions China,)

  5. National Institute for Chinese Studies (NICS), University of Leeds, Leeds, United Kingdom.

    Hinrich Voss (Postdoctoral Fellow at the White Rose East Asia Centre (WREAC),)

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Buckley, P., Cross, A., Tan, H. et al. Historic and Emergent Trends in Chinese Outward Direct Investment. MANAGE. INT. REV. 48, 715–748 (2008). https://doi.org/10.1007/s11575-008-0104-y

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