Overseas Impacts of China’s Outward Direct Investment Bijun Wang1, Rui Mao2 and Qin Gou3 1 Chinese Academy of Social Sciences 2 Zhejiang University 3 Peking University Prepared for 10th Trilateral Workshop of PRI-CASS-KIEP 1 June 2016

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Chinese Export Grows at Lower Speed and ODI Rise Up

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Traditional Way of China Integrating into the World: trade

New Way of China Integrating into the World: ODI

First, following the investment development path theory, a country’s international investment position is closely related with its GNP per capita. In this sense, China’s rapid economic development is the foundation of net overseas investment.

Second, the increasing domestic constraints constraints in resources and environment are increasing

technology is the bottleneck for many domestic firms to thrive

ODI can be an escape response to institutional constraint in home country

Why is there rapid growth of Chinese ODI ? Economic Reality and Policy Choice

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Third , the support from the Chinese government relieve the investors’ economic and political worries. “Going Out” strategy

“One belt, One Road” initiative

Silk Road Fund

AIIB

Why is there rapid growth of Chinese ODI ? Economic Reality and Policy Choice

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Significance with Mixed Feelings

Mixed Feelings

Concerns: “New Colonialism”, take away technologies, resources and jobs, etc.

Gifts: infrastructure, capital, market, etc.

Hard to measure net benefits

A changing pattern of Chinese ODI

Investment type

Target sector

Host country’s characteristics

Host country’s policy environment

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Two complementary datasets

“Statistical Bulletin” “Statistical Bulletin of China’s Outward Foreign Direct Investment”

official ODI report, updated to 2014 from 2003

Flaws: data is too general and aggregate; only report the first destinations.

CGIT data project-level dataset “China-Global-Investment-Tracker”

provided by American Enterprises Institute and Heritage Foundation

from January 2005 to December 2015

Stylized Facts of Chinese ODI

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SOEs dominate with private enterprises rising

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central SOEs accounts for 72.66 of total non-financial ODI on average in 2003-2014.

But the share of local enterprises exceeded that of CSOEs for the first time in 2014

Sector Distribution 8

Top 20 Destinations of China’s ODI 9

A Domestic-Oriented Chinese Style

[1] The unit for Large Chinese ODI is $million, for SMEs Chinese ODI is $10 thousand.

By number By value

Large Chinese ODI

Market seeking 49 27.20% 6.9 22.20%

Resource seeking 61 33.90% 9.9 31.60%

Technology seeking 63 35.00% 14.2 45.50%

Efficiency seeking 7 3.90% 0.2 0.70%

SMEs Chinese ODI

Trade 982 77.32% 55710.34 31.87%

Production (Manufacturing & Processing) 159 12.52% 69630.02 39.84%

Construction and real estate 36 2.83% 11542.07 6.60%

Explore resource 32 2.52% 15875.53 9.08%

R&D 25 1.97% 6252.68 3.58%

Industrial park 7 0.55% 4453.38 2.55%

Other 29 2.28% 11316.43 6.47%

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Jobs without Enough Technology Transfers

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Employment of Chinese ODI Firms, 2007-2014

Jobs without Enough Technology Transfers

African Perceptions of the Economic Impact of Chinese ODI

Country

Contribution Liberia Ethiopia Rwanda Nigeria Zambia

Local job creation? Yes Yes Yes Yes Yes

Local industrialization? No Yes Yes Yes No

Technology transfer? No No No No No

Overall n.a. Yes Yes Yes Yes

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Chinese Capital and Market

China was mainly a fund provider and in some cases physical presence of

Chinese firms did not substantially increase

Related with the country’s financial repression

Facilitate the entry of foreign enterprises, goods and services into China’s

domestic market.

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Bilateral and multilateral interconnection cross-border investment is often initiated by multinational companies,

or the oversea investment makes the companies multinational.

infrastructure projects gradually turn into an important approach to enhance bilateral or multilateral relationships.

Reshape global economic goverence Concerns associated with Chinese ODI are not the primary concerns

in the current global economic governance framework.

Chinese ODI brings new elements in investment rules through signing bilateral investment treaties (BITs)

AIIB is another contribution to regional and global governance initiated by China.

Investment integration is different from trade integration

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Looking Forward

1. Three dynamics reshape Chinese ODI pattern

Increasing conflicts

Accelerating learning

China’s domestic structural changes

2. There will be more private ODI

Continuously rising domestic production costs

Accelerated capital account liberalization.

3. Chinese capital will flow more into developing world, and technology transfers are expected to accelerate.

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Looking Forward 4. Escalating conflicts will push Chinese government and firms to pay more attention to

local legal and social context, and keep up with international counterparts in corporate

behaviors.

“Management Guidelines on Staff Management of Overseas Chinese-funded Enterprises”

(2011)

“Several Opinions on the Cultural Development of Overseas Chinese Companies”(2012)

“Guidelines for Environmental Protection in Foreign Investment and Cooperation” (2013)

5. China will actively expand and protect its interests overseas.

In developed host economies: reduce investment barriers and depoliticize foreign regulatory

review process.

In developing host countries: better protection of its overseas investment.

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Thank You

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