Published online by Cambridge University Press: 12 February 2009
It is now receiving wide attention that since the adoption of the open-door policy at the end of the 1970s China has been extremely successful in attracting foreign direct investment (FDI). Particularly, according to UNCTAD's World Investment Report 1997: Transnational Corporations, Market Structure and Competition Policy, China has become the second largest recipient of FDI in the world since 1993, after the United States. On the other hand, however, it seems less noticed that China has also become a growingly important FDI exporting country. According to UNCTAD's same report, China now ranks as one of the largest outward investors among developing economies in the 1990s. By the end of 1996, the cumulative stock of Chinese outward FDI had reached over $18 billion, next only to Hong Kong ($112 billion), Singapore ($37 billion) and Taiwan ($27 billion). Consequently, China increased its share in world-wide FDI outflows from less than 0.5 per cent until 1991 to an average of 1.3 percent in 1991–95. As China is rapidly rising as a new economic power, its deepening participation in the regional and global economy, through both inward and outward FDI as well as trade, will inevitably bring about significant implications in the international political economy. This article attempts to explore the development of Chinese outward FDI, its characteristics and motives, the outward FDI regime, the government's policies and existing problems, and the prospects for the future trend of Chinese outward FDI.
1. According to United Nations Conference on Trade and Development (UNCTAD), foreign direct investment (FDI) is defined as an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy (that is, foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. FDI comprises three components: equity capital, reinvested earnings and intra-company loans. (UNCTAD, World Investment Report 1997: Transnational Corporations, Market Structure and Competition Policy (New York & Geneva: United Nations, 1997), p. 295)Google Scholar This definition of FDI is adopted in this article.
2. China's annual FDI inflows since 1993 were $28 billion for 1993, $34 billion for 1994, $36 billion for 1995, $42 billion for 1996 and over $60 billion for 1997. The figures for 1993–96 are from UNCTAD, World Investment Report 1997Google Scholar, Annex table B.I, pp. 303–307; also from IMF, Balance of Payments Statistics Yearbook, 1990–1997 (Washington, D.C.: International Monetary Fund).Google Scholar The figure for 1997 comes from Renmin ribao (People's Daily), 17 01 1998, p. 2.Google Scholar
3. UNCTAD, World Investment Report 1997, pp. 319–324.Google Scholar According to James Xiaoning Zhan, there are two main sources of data on Chinese outward FDI, the IMF and the Ministry of Foreign Trade and Economic Cooperation (MOFTEC). However, the data-collection and estimation methods adopted by these institutions are so different that there are large discrepancies in the values reported. The MOFTEC data are based on official approval figures for initial outflows rather than actual investment, thus excluding reinvested earnings by Chinese foreign affiliates that have passed the original screening process. MOFTEC also does not screen many other outward FDI projects. Furthermore, numerous small investment projects have simply escaped the screening process. Hence the MOFTEC data significantly underestimate China's actual FDI outflows. The IMF estimates are based on sample data collected by the State Administration of Foreign Exchange Control of China (SAFEC) from its offices in various provinces. They represent actual capital movements and cover equity capital, reinvested earnings and inter-company loans. For this reason, the IMF data are adopted by UNCTAD's report, on which this article relies. For a detailed discussion on the issue, see Zhan, James Xiaoning, “Transnationalization and outward investment: the case of Chinese firms,” Transnational Corporations, Vol. 4, No. 3 (12 1995), p.72.Google Scholar
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11. Almanac of China's Foreign Economic Relations and Trade, cited from United Nations Centre on Transnational Corporations (UNCTC), World Investment Directory 1992: Foreign Direct Investment, Legal Framework and Corporate Data, Volume I: Asia and the Pacific (New York: United Nations, 1992), p. 69.Google Scholar
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43. At present, labour and special technique export, which has traditionally been the country's major sources of earning foreign currency, is particularly important for China because it can help relieve the increasingly serious unemployment burden brought about by the large-scale restructuring of the state-owned enterprises.
53. Some Chinese companies have also raised capital through similar means in other major international financial markets, such as New York, Tokyo, etc.
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64. In general, all foreign affiliates have been exempted from taxes for the first five years of their existence. After this period, foreign affiliates pay taxes on earnings of 20%.
65. These loans are especially provided to overseas projects of resources extraction and investment projects in the manufacturing/processing which require a large amount of initial capital. For example, those Chinese investment projects in ocean fisheries, forestry and minerals in Western Africa, Alaska, Brazil and Australia rely on such national bank loans sponsored by the government.
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75. Currently there are 239 such trust and investment companies in China. Business Week, 28 12 1998, p. 27.Google Scholar
76. It is widely reported that more troubled companies should be on the waiting list for bankruptcy. However, as Beijing's refusal of guaranteeing the bankrupt GITIC's debt severely shook the confidence of the foreign financial community over China, bringing about very negative consequences on future inflow of foreign capital, the Chinese government has now become more cautious over letting companies go bankrupt. Instead, Beijing is currently trying to work out some restructuring plan to help companies in trouble out of the crisis. See Business Week, 15 03 1999, pp. 18–19.Google Scholar
77. John Dunning's investment development path model was first put forward in 1979. It was later modified by John Dunning and Rajneesh Narula. For a summary of this analytical model, see Dunning, John H. and Narula, Rajneesh, “The investment development path revisited: some emerging issues,”Google Scholar in Dunning, and Narula, , Foreign Direct Investment and Governments, pp. l–41.Google Scholar According to this model, countries in Stage 3 are marked by a gradual decrease in the growth rate of inward FDI and an increase in the growth rate of outward FDI that results in improving net outward investment (NOI); Stage 4 is reached when a country's outward FDI stock equals or exceeds the inward FDI stock and outward FDI continues to grow faster than inward FDI; and finally in Stage 5 the NOI position of a country first falls and later fluctuates around the zero level while at the same time both inward and outward FDI are likely to continue to increase. Developed countries are currently approaching this fifth stage.
78. For both geopolitical and geoeconomic considerations the Chinese government has repeatedly pledged not to devaluate the Chinese yuan. These considerations are clearly expressed in a column article, “Play well the card of RMB,” in China Economic Times, 26 06 1998, p. 7.Google Scholar
79. The modern history of the world economy shows that later comers usually complete various development stages much faster than their predecessors.
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