Outward Foreign Direct Investment from China and Its Policy Context
Davies, Ken, China: An International Journal
China's OFDI stock reached USD230 billion in 2009, sharply up from 28 billion in 2000 and USD4 billion in 1990. China has been a late developer in its outward investment, even among large emerging markets. Brazil had OFDI stock of USD43 billion in 1990 and 52 billion in 2000, way ahead of China, but fell behind with only USD158 billion in 2009. China's OFDI stock also now exceeds that of Singapore, with USD213 billion. Russia's OFDI grew more rapidly than China's, reaching USD249 billion in 2009. China, though, did continue to outperform India, with its modest 2009 total of USD77 billion (see Table 1). China's OFDI was minimal during the first two decades of economic reform from the end of 1978 to 2000. At the turn of the century, government policy switched from mildly permissive to strongly encouraging. (1) Since then, OFDI flows from China have accelerated from less than USD1 billion a year in 2000 to USD48 billion in 2009 (see Table 2). The bulk of China's OFDI goes into the tertiary sector. By the end of 2008, the main recipients of China's OFDI stock were leasing and commercial services (which accounted for 30 per cent of the total), financial services (20 per cent) and wholesale and retail trade (16 per cent). The primary sector came second: in 2008, mining, quarrying and petroleum comprised 12 per cent of the total OFDI stock. Unlike in the case of China's inward direct investment, the secondary sector is a relatively minor component, making up only 5 per cent of the OFDI stock in 2008 (see Table 3).
In recent years, the sectoral distribution of China's OFDI has remained stable. However, this stability may be illusory and it is likely to give way to major shifts in composition in the coming years. OFDI in leasing and commercial services may have been initially undertaken in support of the country's rapid growth in merchandise trade. More recently, this service-sector investment may be supporting a move into extractive industries that has yet to be reflected in the drawing down of funds for massive energy and raw materials projects. In the future, Chinese firms may also diversify towards manufacturing to service global consumer goods markets more directly.
The bulk of China's OFDI goes to Asia, which accounted for USD131 billion (71 per cent) of total OFDI stock in 2008. However, most (88 per cent) of that stock actually went just to one destination, Hong Kong. While some may have stayed there, an unknown and probably high proportion most likely continued its journey to another ultimate destination, including an element of "round-tripping" back to China itself to take advantage of fiscal incentives offered before these were withdrawn at the beginning of 2008 (see Table 4).
THE CORPORATE PLAYERS IN CHINA
According to the most recent Fudan-VCC survey of Chinese multinationals in 2007, the two largest Chinese multinational enterprises (MNEs) were the China International Trading and Investment Corporation (Citic), with foreign assets exceeding USD25 billion, and the China Ocean Shipping (Group) Company (COSCO), with foreign assets of some USD21 billion. Both are well-established corporations that have built up an international presence over several decades. China's oil majors are also important overseas investors, including China National Petroleum Corporation (CNPC, which ranks 10th in the 2010 Fortune Global 500), with foreign assets of USD7 billion, Sinochem Group, with USD6 billion and China National Offshore Oil Corporation (CNOOC), with USD4 billion. Other mineral resource investors include two metallurgy MNEs: Sinosteel Corporation, with foreign assets of USD2 billion, and China Minmetals Corporation, with foreign assets of USD2 billion.
These MNEs can be expected to keep expanding as China continues to secure energy and raw material sources for its industrialisation. Producers of consumer goods are also starting to become important as Chinese producers seek to penetrate foreign markets by mergers and acquisitions (M&As), to acquire brand names and market share, as in the case of the Lenovo Group, with foreign assets of USD4 billion, which acquired IBM's personal computer division in 2005. …