Transnational Corporations, Vol. 23, No. 2, Article 1: Has outward … · 2020. 9. 2. · Transnational Corporations, Vol. 23, No. 2 3 go abroad as early as the 1980s, when China

Has outward foreign direct investment contributed to the development of the

Chinese economy?

Jan Knoerich*

Research and literature on foreign direct investment (FDI) and economic development have to date focused almost entirely on development in the host economy, sidelining the question of any contribution to development in a multinational enterprise’s country of origin. To address this shortcoming in research on FDI, this study investigates whether Chinese outward FDI can be seen as having made a contribution to the development of the mainland Chinese economy over the past three decades. It finds that the activity of Chinese enterprises in pursuing assets and advantages abroad through outward FDI yields four categories of returns: financial, capability, capacity and macroeconomic. These returns have addressed some of the specific challenges that China has faced in the process of its economic development, although the extent and importance of the development contribution remains uncertain. Outward FDI can play both a complementary and a supplementary role to development benefits realized from opening up to international trade and inward FDI, and from emigration.

1. Introduction

Research and literature on foreign direct investment (FDI) and economic development has to date focused almost entirely on development in the host economy where investment is made (Crespo and Fontoura, 2007; Saggi, 2002; JBICI, 2002; Fan, 2003; Görg and Strobl, 2001; Lim, 2001; UNCTAD, 2013; Javorcik, 2004), sidelining the question of any contribution to home country development. In an era predating the appearance of the emerging multinational enterprises (MNEs) as important global players, this focus on the host economy – and relative negligence of home-economy development – was reasonable: FDI was largely an activity reserved for MNEs from countries that were already developed, and theories about FDI – from Hymer’s (1960) market power hypothesis and Vernon’s (1966) focus

* Dr. Jan Knoerich is Lecturer in the Economy of China at the Lau China Institute, School of Global Affairs, King’s College London. Contact: [email protected] The author is grateful to comments provided by the editor and by anonymous reviewers. The author also would like to thank the participants at the 8th China Goes Global Conference on 19-21 August 2014 for their comments on an earlier version of this paper.

2 Transnational Corporations, Vol. 23, No. 2

on product innovation to Dunning’s (2001) ownership advantages – emphasized the technological, innovative and managerial superiority of the investing MNE as an essential explanation for the occurrence of FDI. The investment development path similarly assumed FDI to occur as a consequence of economic development (Dunning, 1981). These theories were formulated at a time when most FDI flows were unidirectional, from more to equal or less advanced economies. Development in poorer economies was also associated with the inflow of productive capital, technologies and economic activity from advanced-economy MNEs, rather than with any form of capital outflow.

The ascendance to global significance of the MNEs from emerging economies after the turn of the century ushered in a new era in the study of FDI. Since then, researchers have begun to revisit some of these assumptions, often suggesting the necessity of expanding existing theories and common understandings about the nature of FDI (Gammeltoft, Barnard and Madhok, 2010). Yet somewhat missing from these discussions is the possibility that, because the MNE is the primary beneficiary of its investments, its overseas operations and investments could support the development of its country of origin – especially if the enterprise comes from a developing or emerging economy. Hardly any research has examined in detail the development contribution of outward foreign direct investment (OFDI) in emerging economies or developing home countries. More generally, a comparatively small number of studies have examined the impact of FDI on home countries, with many of them focusing primarily on the potential “hollowing out” of the advanced home economies and the resulting necessity of economic restructuring, an issue that would be of lesser significance to developing home countries.

In view of these shortcomings in research on FDI, the purpose of this study is to explore the nature and importance of the gains and potential benefits for a developing home country from OFDI. As this study seeks to inductively develop a framework that focuses on the development contribution of OFDI in less advanced economies, it is analytically prudent to explore this issue by making use of the case study method. For the purpose of such an examination, I chose mainland Chinese OFDI as a particularly appropriate case for a number of reasons. First, China has so far been the source of the highest amount of OFDI among developing economies. Second, Chinese firms started to

Transnational Corporations, Vol. 23, No. 2 3

go abroad as early as the 1980s, when China was clearly undergoing processes of rapid economic development. Figure 1 illustrates that already during the 1990s, China’s OFDI stock as a percentage of gross domestic product (GDP) was between 1 and 3 percent, substantial enough to justify consideration of its potential contribution to China’s economic development. After 2003, a stronger outward push became visible with the accumulated stock of Chinese OFDI rising to an impressive US$614 billion in 2013. Third, although China is a country with strong economic fundamentals, it faces severe economic and developmental challenges related to technological deficiencies, resources shortages, food security, population pressures, environmental degradation, pollution and more. Despite rapid economic growth of more than 8 per cent in most years since economic reforms were launched in 1978, China’s GDP per capita is still relatively low. For these reasons, China is a particularly useful case for exploring mechanisms that link OFDI to the development of the home economy.

An interesting aspect of Chinese OFDI is that development considerations have featured in official government policy. Since the 1980s, the Chinese government has, both institutionally and through

Figure 1 . China’s OFDI stock

Source: UNCTADStat database.

0

1

2

3

4

5

6

7

0

100

200

300

400

500

600

700

US$ billion % of GDP

US$ billion %


various legal measures and frameworks, experimented in an industrial policy-type fashion with the guidance and promotion of OFDI in the interest of China’s economic development (Zhan, 1995). However, as research has not thoroughly investigated the development contribution of OFDI in home developing countries, not much is known about the effectiveness of such policies. Has OFDI made a meaningful contribution to development in China? Available theories or frameworks also do not function well in explaining the development contribution of OFDI to the home economy, given the aforementioned focus of theories on ownership advantages and the technological, innovative and managerial superiority of the investing MNE. As a result, the Chinese and other governments of developing and emerging economies will have difficulties making any decisions about appropriate OFDI policies on the basis of existing academic and scholarly research.

What is the nature of the potential development contribution of OFDI, and how could government policy effectively harness it? To address these questions, several analytical steps are at the core of this study’s investigation. To begin with, I review the relevant literature on Chinese OFDI to gather preliminary insights into the contribution of OFDI to economic development in China. Then I identify and categorize the mechanisms through which Chinese OFDI has made development contributions. This is done by developing the concept of “returns” from OFDI and by examining how these returns have contributed to economic development in China. Particular examples of Chinese MNEs are drawn upon to confirm the findings.

In order to evaluate the importance of OFDI to the development of the Chinese economy, I further assess the strengths and feasibility of these mechanisms in contributing to development. An important consideration is whether OFDI adds something unique to the other channels of economic interaction with the rest of the world from which China’s economic development has been found to have benefited in the past – namely trade, inward FDI and migration. Development studies often depict these economic exchanges with the rest of the world as shown in figure 2 but omit OFDI owing to the lack of research on its development contribution. I include OFDI in this figure by way of a dotted line, aiming with this study to determine, for the case of China initially, whether OFDI should rightfully be included in this graph.


Given the explorative character of this study, an inductive approach to research was applied. In the spirit of concept development and theoretical expansion, a single-country case study is examined to develop an analytical framework on the development contribution of OFDI (Yin, 2014; Eisenhardt, 1989), which future studies can use and test in further analyses of the Chinese case or of other developing countries. This study concludes with relevant considerations for future economic policy.

I take the State-centric position of the MNE, which considers the MNE as a product of its economic, institutional and cultural origins in the home country (Gilpin, 2001, p. 288). This is appropriate for Chinese OFDI, which has emerged only recently and has not yet generated the kind of globalized MNEs in which the country of origin is becoming blurred. For the purpose of this study, I apply a broad understanding

Figure 2. Economic exchanges with the rest of the world and economic development

Source: Adapted from Andreosso-O’Callaghan and Qian, 1999, p. 128 and World Bank, 2008, p. 8.

IMPORTS

EXPORTS

INWARD

OUTWARD

IMMIGRATION

EMIGRATION

REST OF THE WORLD

Trade FDI Migration

Firms

National absorptive capacity(Governance/business climate, eduction and technological literacy, banking and finance, industrial policy)

National economic development(Mitigation of domestic development needs: constraints, shortages and bottlenecks)

Firm-level absorptive/learning capacityEffective organizational learning


of the term “development”, including not only growth in GDP but also more qualitative contributions to the economy such as economic restructuring, technological advancement, sustainability, and improved productivity or efficiency (Soubbotina, 2004, p. 133). I also consider development to be an issue for countries categorized by the World Bank as developing or transition economies (a group that includes China) and a process that the advanced industrialized countries have successfully concluded.

2. Chinese OFDI: Initial considerations on home-economy development

Some studies have empirically examined the impact of OFDI on advanced home economies. Although far from all of them find evidence of such a relationship, a few have identified positive effects (Blomström and Kokko, 1998; Dunning and Lundan, 2008; Kokko, 2006; Lipsey, 2004; Moran, 2006) – an encouraging observation in view of this study’s particular objectives. Table 1 provides a list of studies that have found OFDI to enhance economic growth, exports, productivity, efficiency, competitiveness, technologies and know-how in advanced home economies. It is possible to infer from these studies that similar effects must play a role in developing and emerging economies such as China, although concrete evidence is lacking. In fact, with such economies as the countries of origin, any impact from OFDI should come in the form of more specific development contributions to the home economy, with more significant qualitative benefits than the typical gains from OFDI made in advanced countries. But given the lack of concrete evidence, the need for thorough case study analysis of individual developing countries is urgent.

In line with the broader picture in the literature on inward FDI and development, accounts of Chinese OFDI have focused on the development impact that Chinese MNEs have in host countries, especially in Africa and Southeast Asia (Kubny and Voss, 2014; Whalley and Weisbrod, 2011). There is no body of literature examining the impact of OFDI on China’s economic development, although some of the literature indicates the existence of such an impact. The rest of this section examines this literature to establish a foundation based on which a framework of Chinese OFDI and economic development can be developed.


Type of FDI Impact on home economy SourceFrench OFDI French exports and French FDI are

complementary. Chédor, Mucchielli and Soubaya, 2002

UK OFDI OFDI can raise productivity in the United Kingdom.

Driffield and Love, 2005

Austrian OFDI to Eastern Europe

Outsourcing increases economic and total factor productivity growth in Austria.

Egger, Pfaffermayr and Wolfmayr-Schnitzer, 2001

Italian OFDI OFDI is associated with employment growth at the local level compared with the national industry average.

Federico and Minerva, 2008

Swedish OFDI OFDI supports the diffusion of foreign technology to Sweden.

Globerman, Kokko and Sjoholm, 1996

OFDI from Nordic countries

Activities of firms abroad transferred knowledge into the national innovation systems of Nordic home countries.

Herstad and Jónsdóttir, 2006

OFDI from 14 industrialized countries

In the long run, OFDI has a positive effect on output.

Herzer, 2008

OFDI from the United States and Germany

OFDI has positive effects on domestic investment in the short run and, for the United States, in the long run as well.

Herzer and Schrooten, 2008

OFDI from the United States and 50 other countries

The association between OFDI and growth is positive.

Herzer, 2010

French OFDI Market-seeking and services OFDI create jobs in the home country; factor-seeking FDI improves capital-intensity and efficiency, and enhances exports.

Hijzen, Jean and Mayer, 2009

FDI in West Sweden

R&D activities in west Sweden resulted in benefits for the global economic activities of the foreign companies involved, in sectors ranging from manufacturing to services.

Ivarsson and Jonsson, 2003

Japanese OFDI Japanese exports are promoted by the activities of Japanese foreign manufacturing affiliates.

Lipsey and Ramstetter, 2003

United States OFDI

Diffusion of knowledge occurs from the host country back to the United States.

Popovici, 2005

European Union (EU) OFDI

OFDI from the EU has contributed to enhancing competitiveness and productivity in EU member States.

Sunesen, Jespersen and Thelle, 2010

OFDI from 22 industrialized countries

The productivity of an economy increases if its OFDI is directed to R&D-intensive countries.

Van Pottelsberghe de la Potterie and Lichtenberg, 2001

Table 1. Favourable impact of OFDI on advanced home economies: Evidence from the literature

Note: This table lists only a selection of studies that find results favourable to the home economy. It is not comprehensive and does not list studies with negative or no findings. A more comprehensive account of studies and their results has been provided by Lipsey (2004) and by Kokko (2006) in extensive summaries of the literature.


2.1. Chinese OFDI as a pursuit of assets and advantages

It has been argued that Chinese OFDI is a natural result of China’s increasing economic strength (Liu et al., 2005). However, especially with regard to Chinese OFDI into the advanced economies – which is a considerable share of all Chinese OFDI – the more common view has been that the Chinese economy and its firms continue to exhibit numerous weaknesses, with OFDI often driven by the desire to overcome these weaknesses (Ash, 2008, p. 199; Child and Rodrigues, 2005, p. 388; Deng, 2007, p. 77, 2008; Knoerich, 2012, 2010; Von Zedtwitz, 2005; Yang, 2005, pp. 49-58; Wu 2005, pp. 8-9; Young et al., 1996). Reference is often made to the lack of within-firm strategic resources, especially technologies, know-how and brands (Wu, 2005; Deng, 2008). Some Chinese firms are considered “multinationals without advantages” (Fosfuri and Motta, 1999), or at least do not exhibit the same type of firm-specific capabilities, focused on technological, managerial or marketing superiority, that have been typical for MNEs from advanced economies (Guillén and García-Canal, 2009).

This view contradicts, at least in part, traditional theories of FDI, which argue that market power and competitive advantages are both key to successful overseas investment (Hymer, 1960; Dunning, 2001). Some literature suggests that Chinese companies began to invest abroad comparatively early, when China was not yet sufficiently developed to justify the magnitude of OFDI already observed (Yang, 2005, pp. 54-55). Chinese OFDI does not seem to fit with the internationalization and psychic distance approaches to foreign investment either (Johanson and Vahlne, 1977, 1990). Rather than undergoing incremental overseas expansion, as these theories would predict, Chinese companies have expanded rapidly into distant economies, many quite different from the Chinese economic system. As a result, several studies have mentioned the need to expand existing theory on the basis of observations about Chinese OFDI (Child and Rodrigues, 2005, p. 407; Buckley et al., 2007, pp. 501-503; Gammeltoft, Barnard and Madhok, 2010).

Instead of emphasizing the competitive advantages of Chinese MNEs as a foundation of their OFDI behaviour, a number of studies have focused on what could be termed the “pursuit of assets and advantages” abroad. Chinese MNEs have made attempts to overcome


their firm-specific disadvantages by using OFDI as a means to acquire various kinds of strategic assets, including know-how, brands and technologies (UNCTAD, 2006, pp. 162-163; Child and Rodrigues, 2005). This has been confirmed in numerous case studies (Knoerich, 2010; Rui and Yip, 2008; Child and Rodrigues, 2005; Wu, 2005), and has been identified as a motivation for OFDI – even before 1992 (Young et al., 1996). Chinese OFDI in the acquisition and extraction of natural resources has also been significant and is rapidly expanding (Buckley et al., 2007, p. 504; Deng, 2004, p. 11; Cai, 1999; UNCTAD, 2007, p. 100), with the annual number of new deals reaching record levels in recent years.

Probably the main motivations for Chinese companies to invest abroad have in fact been expansion into new markets, strengthening of export markets, or circumvention of trade barriers (Knoerich, 2012; Keller and Zhou, 2003, p. 11; Deng, 2004, pp. 12-13; Taylor, 2002, p. 221). Together with strategic-asset-seeking FDI, such pursuit of market access, often for low-cost or niche products (Knoerich, 2012), explains the peculiar situation of a certain geographic concentration of Chinese OFDI in advanced economies: their large markets combine with an environment in which firms hold a considerable amount of managerial and marketing know-how, technologies and brand names. OFDI aimed at reducing production costs has been less important for Chinese companies, as production costs have been among the lowest in China itself. However, this kind of OFDI from China is slowly increasing as the Chinese economy reaches the “Lewis turning point” and as labour costs are rising rapidly.

OFDI as a pursuit of assets and advantages to overcome competitive weaknesses and disadvantages is being highlighted as an important difference from conventional North-North or North-South FDI. A few studies have examined Chinese OFDI through the resource-based view of the firm (Deng, 2008), explaining how the Chinese MNEs, through overseas investments, obtain complementary resources that they lack in-house. Similarly, the linkage-leverage-learning approach takes a learning-based view of Chinese OFDI (Li, 2007; Mathews, 2006).

Such perspectives are particularly useful when exploring the development implications of OFDI for the Chinese economy. Many of the assets and advantages pursued by Chinese MNEs can yield


broader benefits for the investing firm’s operations in China, for other firms in China and for the Chinese economy as a whole. Yet, in much of the literature, the link between the motivations and determinants of Chinese OFDI and their respective development outcomes in China has been made implicitly, if at all. There is definitely a lack of detailed, focused analyses of the various dimensions of this development contribution. This may be because much of the research on Chinese OFDI to date has emerged in the field of international business, which is primarily concerned with firm-level analyses, rather than in other areas such as development studies, where macroeconomic effects and development implications may receive greater coverage. The purpose of this study is to bring more attention to this broader dimension of economic development – essentially an outcome of the activities of Chinese firms going abroad – in order to raise awareness of an important but underinvestigated area of inquiry.

2.2. Chinese government support for OFDI and development

Since the 1980s, the Chinese government has been concerned in a number of ways with fostering OFDI in line with national economic development priorities (Zhan, 1995, p. 81; Zhang and Van Den Bulcke, 1996, p. 417; Zhang, 2003, p. 62). The high level of State ownership of China’s outward investing firms (Morck et al., 2008, p. 340; MOFCOM, 2014, p. 107; Korniyenko and Sakatsume, 2009, p. 11; OECD, 2008, p. 2), capital market imperfections that favour those firms (Buckley et al., 2007, p. 501), and the steering of OFDI behaviour through a well-structured policy framework and economic incentives have been regularly pointed out in studies of Chinese OFDI (Brown, 2008, p. 5; Lu, Liu and Wang, 2011; Wang, 2002, p. 187; Yeung and Liu, 2008; UNCTAD, 2006, p. 157). In the earlier years of China’s economic reforms, the Chinese government was particularly concerned with the encouragement, regulation and control of Chinese enterprise activities and investments abroad (Zhang, 2003, p. 55). Government involvement in OFDI decisions could be very direct, guiding large Chinese State-owned enterprises (SOEs) in selected industries to invest in designated destination countries in line with China’s long-term strategic interests. Such government involvement was often motivated by concerns related to China’s economic development, such as the strengthening


of export opportunities and access to strategic resources, including know-how, technologies, equipment and raw materials (Wang, 2002, pp. 192-194; Wu and Chen, 2001, pp. 1237-1239; Guo, 1984; Zhang, 2003, p. 57; Zhan, 1995, p. 70; Zhang and Van Den Bulcke, 1996, pp. 417). OFDI had the potential to improve the competitive strength of Chinese firms, support catch-up ambitions and offset disadvantages in global competition (Tan, 2001, p. 192; Chen, 2005, p. 30; Luo, Xue and Han, 2010).

This approach was continued, albeit in a less stringent way, with the “going out” policy implemented by China’s Ministry of Commerce with the National Development and Reform Commission (NDRC) after 2000. The policy supports the exploration of natural resources to reduce domestic shortages, promotes exports, encourages the establishment of research and development (R&D) centres abroad to utilize foreign technological know-how, and selectively supports engagement in mergers and acquisitions (M&As) that can improve the competitiveness of Chinese firms and facilitate access to foreign markets (UNCTAD, 2006, p. 210). Support offered by the government has included the provision of information, guidance and training to investors (including through the publication of three consecutive lists indicating the countries and industries in which Chinese enterprises should invest), administrative support, facilitation of investments through diplomatic or non-diplomatic means, and financial assistance, such as through insurance, taxation (People’s Daily Online, 2007), and low-interest loans and preferential credit (Child and Rodrigues, 2005; Zhang, 2003, p. 60-61; Warner et al., 2004, p. 340; UNCTAD, 2006, p. 180; Xiao and Sun, 2005). Gallagher and Irwin (2014) estimate the magnitude of China’s OFDI finance from its development banks between 2002 and 2012 to have reached US$140 billion.

Because of these many forms of involvement by the Chinese State, the business literature often sees political and institutional factors functioning as important drivers and home-economy determinants of Chinese OFDI. The support and encouragement by the State, State ownership, and the existence of capital market imperfections in China that give preference to SOEs have been found to influence the OFDI decisions of Chinese enterprises and potentially offer them a source of competitive advantage (Morck et al., 2008; Antkiewicz and Whalley, 2006; McKinsey, 2008, p. 4).


China’s industrial policy-type OFDI regime is usually dealt with in a critical manner and not considered in light of the country’s development priorities. Concerns about the potential negative spillovers of China’s institutions and OFDI policy regime in host countries greatly exceed any recognition that the Chinese government may be pursuing legitimate development policies that may often be in line with host country interests. The literature does not present a framework that enables an analysis of whether and how Chinese OFDI contributes to the development of the Chinese economy, thereby preventing a proper evaluation of the appropriateness of China’s OFDI policies. The purpose of the following section is to develop such a framework.

3. The returns from Chinese OFDI

The literature on Chinese OFDI forms a useful basis for exploring the mechanisms through which OFDI contributes to China’s economic development. This literature has shown that Chinese enterprises, often driven by deficiencies in the home economy, invest abroad to pursue assets and advantages in four key areas: markets, strategic assets, natural resources and, on lesser occasions, efficiency enhancement. It is this pursuit of assets and advantages as a core activity of any direct investment that should form the starting point of an analysis of the development contribution.

How the pursuit of markets, strategic assets, natural resources and efficiency contributes to development in the Chinese economy remains obscure. In this study, I argue that a contribution to economic development in China becomes possible if the successful and effective pursuit and appropriation overseas of an asset or advantage generates some sort of positive return, not only for the subsidiary of the Chinese company but also for the company’s headquarters and operations in China and, by extension, for the Chinese economy as a whole. A thorough analysis of the nature and types of returns that Chinese OFDI generates, including an examination of the impact these returns have in China and whether they address any particular development needs, can greatly help assess the role OFDI plays in supporting development in the home economy.

In what follows, the case of Chinese OFDI is examined to identify the returns that OFDI generates. In the process, quantitative macro


data and relevant findings from the literature are supplemented by concrete evidence from individual cases of Chinese companies. For this purpose, table 2 provides a rare list of more than two dozen specific cases in which the returns generated by Chinese companies’ OFDI have been concretely identified and documented. This collection of clear examples is in many ways unique, especially given the generally low availability of concrete and published accounts of Chinese OFDI cases. The examination of this data resulted in the identification of four types of returns generated by Chinese companies from OFDI. The following sections examine each of these in greater detail.

3.1. Financial gains from FDI and associated economic activities

It is in the nature of an investment that the ultimate objective is financial gain. Although not explicitly mentioned in table 2, most if not all investments listed there were ultimately driven by the profit motive. Balance-of-payments statistics for China show that the overall amount of money earned by Chinese MNEs abroad is not insignificant – more than US$30 billion in income was generated from OFDI in 2013. As figure 3 illustrates, rates of return on Chinese OFDI have ranged between 5 and 6 per cent in the years from 2009 to 2013. Substantial amounts of FDI income are reinvested in the host country (US$22 billion in 2013), but when remaining funds are repatriated and reinvested in the home economy, Chinese companies and China stand to benefit economically. Although an estimated overall value of a few billion dollars in repatriated income will not make a particularly noteworthy economic contribution in view of China’s overall financing capacity today, the contribution to capital accumulation and potential development contribution in individual, possibly localized contexts should not be ignored. For example, remittances from migration may be much higher than these financial returns from OFDI, but they are often consumed rather than reinvested. Moreover, the financial income from OFDI might have mattered more in earlier years of China’s economic reforms, when China was in greater need of foreign exchange.

Possibly of greater importance have been the financial implications of OFDI for China’s export industries, especially as enhancement of exports has played an important role in China’s strategy to promote economic development and maintain a current account surplus. Many


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ace

tech

nolo

gy th

at A

nsha

n w

ould

like

to in

trod

uce

to C

hina

to sa

ve p

ower

and

redu

ce p

ollu

tion.

” (A

redd

y, 20

10)

“Spe

cific

ally,

Ans

han

expl

aine

d th

at:

Ansh

an’s

inve

stm

ent i

n bu

ildin

g m

ills i

n th

e U.

S. is

not

onl

y go

ing

to fi

t the

nee

d of

self-

deve

lopm

ent,

it’s a

lso A

nsha

n’s s

acre

d hi

stor

ic

miss

ion

of b

eing

the

‘eld

est s

on o

f iro

n an

d st

eel’

of th

e w

orld

’s la

rges

t iro

n an

d st

eel

coun

try.

[…] I

t is a

lso A

nsha

n’s c

ontr

ibut

ion

to

the

real

izatio

n of

tran

sfor

min

g Ch

ina

from

a

big

iron

and

stee

l cou

ntry

to a

stro

ng ir

on a

nd

stee

l cou

ntry

.**

Mor

eove

r, se

vera

l of A

nsha

n’s j

ustif

icat

ions

fo

r its

inve

stm

ent d

eriv

e di

rect

ly fr

om th

e […

] in

dust

rial p

olic

ies,

incl

udin

g ac

quiri

ng

adva

nced

tech

nolo

gy a

nd re

turn

ing

the

tech

nolo

gy to

Chi

na, a

nd ‘e

nhan

c[in

g] th

e in

tern

atio

naliz

atio

n of

Ans

han.

’**”

(Pric

e et

al

., 20

11, p

. 10)

Zhej

iang

Gee

ly

Hold

ing

Grou

pVo

lvo

Swed

en

(201

0)“G

eely

will

be

able

to ta

p Vo

lvo

for t

hree

muc

h-ne

eded

tech

nolo

gies

, inc

ludi

ng th

e us

e of

a

mid

size

plat

form

, Vol

vo’s

prov

en sa

fety

in

nova

tions

and

inte

rior a

ir qu

ality

syst

ems.

Th

e la

tter

two

tech

nolo

gies

are

impo

rtan

t to

impr

ove

the

cras

hwor

thin

ess o

f Gee

ly’s

cars

, al

ong

with

hel

ping

isol

ate

vehi

cle

occu

pant

s fr

om C

hina

’s of

ten

seve

re a

ir po

llutio

n.”

(Ros

s,

2012

)

“The

repo

rt sa

ys th

at V

olvo

tech

will

like

ly b

e us

ed o

n a

prem

ium

car

bra

nd th

at G

eely

is

expe

cted

to c

reat

e.”

(Ros

s, 2

012)

Hang

zhou

Mac

hine

To

ol G

roup

(H

ZMTG

)

aba

z&b

Germ

any

(201

0)“C

hine

se H

ZMTG

take

s ove

r 100

% o

f the

shar

es

of a

ba z&

b Sc

hlei

fmas

chin

en [g

rindi

ng

mac

hine

s].”

[tra

nsla

ted

from

Ger

man

] (S

chre

ier,

2010

)

“… th

e pr

oduc

tion

of st

anda

rd m

achi

nes w

as

relo

cate

d to

the

site

in L

inan

in C

hina

…”

[tra

nsla

ted

from

Ger

man

] (Sc

hrei

er, 2

010)


Chin

ese

com

pany

Fore

ign

inve

stm

ent

Coun

try

(Yea

r)As

set/

adva

ntag

e so

ught

Retu

rns

Yanz

hou

Coal

M

inin

g Co

.Fe

lix

Reso

urce

s Lt

d.

Aust

ralia

(2

009)

“‘Ya

nzho

u Co

al h

as b

een

look

ing

at e

xpan

ding

its

ass

ets i

nto

Aust

ralia

for s

ever

al y

ears

,’ sa

id

Andr

ew D

risco

ll, […

]. ‘It

s pro

duct

ion

leve

ls in

Ch

ina

are

fairl

y fla

t in

com

paris

on w

ith it

s pee

rs

and

oppo

rtun

ities

for e

xpan

sion

at h

ome

are

limite

d. It

nee

ds to

look

abr

oad

to e

xpan

d ou

tput

.” (S

cott

and

Duc

e, 2

009)

“agr

eed

to b

uy A

ustr

alia

’s Fe

lix R

esou

rces

Ltd.

[…

] to

secu

re su

pplie

s” (S

alid

jano

va, 2

011,

p.

7) “Ya

nzho

u w

ill p

ursu

e pl

ans t

o bo

ost i

ts c

oal

rese

rves

, Pre

siden

t Yan

g De

yu sa

id in

an

Oct

ober

inte

rvie

w.”

(Sco

tt a

nd D

uce,

200

9)

Chin

a-Af

rica

Cott

on

Deve

lopm

ent L

td

(a jo

int v

entu

re

betw

een

Qin

gdao

Ru

icha

ng C

otto

n In

dust

rial C

o,

Chin

a-Af

rica

Deve

lopm

ent F

und

and

Qin

gdao

Fuh

ui

Text

ile C

o.)

“Chi

na-A

fric

a Co

tton

had

gr

own

a pr

esen

ce in

M

alaw

i.”

(Wan

g, 2

014)

Mal

awi

(200

8)“C

hina

-Afr

ica

Cott

on h

as e

stab

lishe

d a

seed

-br

eedi

ng b

ase

and

a gi

nner

y in

Mal

awi,

with

an

nual

cap

acity

of 3

0,00

0 to

ns. [

…] C

hina

-Afr

ica

Cott

on h

as a

lso b

ough

t a p

lant

in M

alaw

i fro

m

Carg

ill, [

…] t

o ex

trac

t oil

from

cot

ton

seed

.” (W

ang,

201

4)

“A sm

all a

mou

nt o

f the

cot

ton

is pr

oces

sed

loca

lly, w

ith th

e re

st b

eing

ship

ped

back

to

Chin

a, W

ang

[the

gen

eral

man

ager

] say

s.”

(Wan

g, 2

014)

Chin

a N

atio

nal

Offs

hore

Oil

Corp

orat

ion

(CN

OO

C)

Awilc

oN

orw

ay

(200

8)“t

echn

olog

y of

the

Nor

weg

ian

oil p

rodu

cer

Awilc

o, p

urch

ased

[…] f

or 2

.4 b

illio

n eu

ros.”

(G

eini

tz a

nd L

indn

er, 2

012,

tran

slate

d fr

om

Germ

an)

“Thi

s yea

r, CN

OO

C be

gan

its fi

rst o

wn

deep

-se

a dr

illin

g. T

his w

as p

ossib

le w

ith th

e te

chno

loy

of […

] Aw

ilco.

” (G

eini

tz a

nd L

indn

er,

2012

, tra

nsla

ted

from

Ger

man

)W

anxi

ang

Grou

p“h

as

purc

hase

d or

ta

ken

stak

es

in 2

0 U.

S.

com

pani

es”

(Sza

mos

szeg

i, 20

12, p

. 82)

Uni

ted

Stat

es

(199

9-20

06)

“Wan

xian

g Am

eric

a ex

pand

ed b

y pu

rcha

sing

som

e of

thes

e fin

anci

ally

dist

ress

ed fi

rms.”

(S

zam

ossz

egi,

2012

, p. 8

1)

“and

shift

ing

a po

rtio

n of

thei

r pro

duct

ion

to

Chin

a” (S

zam

ossz

egi,

2012

, p. 8

1)


Chin

ese

com

pany

Fore

ign

inve

stm

ent

Coun

try

(Yea

r)As

set/

adva

ntag

e so

ught

Retu

rns

Chin

a Q

ianj

iang

Gr

oup

Bene

lliIta

ly (2

005)

“The

mai

n re

ason

s for

QJ t

o pu

rcha

se B

enel

li w

as to

util

ize a

wel

l-kno

wn

and

reco

gnize

d br

and

in te

rms o

f qua

lity

and

spor

ting

trad

ition

, as

wel

l as t

o ca

pita

lize

on B

enel

li’s

prof

essio

nalis

m a

nd k

now

ledg

e, in

ord

er to

of

fer a

hig

h-qu

ality

pro

duct

in se

gmen

ts th

at

had

not y

et b

een

pene

trat

ed b

y th

e Q

J gro

up.”

(Spi

gare

lli e

t al.,

201

2, p

. 366

)

“Ben

elli’

s pro

duct

s/sp

are-

part

s wer

e al

so to

be

use

d in

Chi

na, s

o as

to in

crea

se th

e qu

ality

of

dom

estic

ally

man

ufac

ture

d pr

oduc

ts a

nd to

fu

rthe

r div

ersif

y pr

oduc

tion

to n

ew c

ateg

orie

s of

clie

nts.

Incr

ease

d ef

ficie

ncy

and

a w

ide

rang

e of

qua

lity

prod

ucts

wou

ld h

ave

help

ed

QJ t

o co

mpe

te w

ith th

e le

adin

g Ja

pane

se

com

pani

es in

the

mot

orbi

ke m

arke

t.”

(Spi

gare

lli e

t al.,

201

2, p

. 367

)

Leno

vo/L

egen

dIB

M P

C Bu

sines

sU

nite

d St

ates

(2

005)

“Not

onl

y w

ould

Len

ovo

be a

llow

ed to

use

the

IBM

bra

nd u

nder

lice

nse

for f

ive

year

s, […

] it

wou

ld a

lso o

wn

IBM

’s pr

emiu

m T

hink

tr

adem

ark

whi

ch c

over

s the

pre

stig

ious

Th

inkP

ad n

oteb

ook

bran

d an

d th

e Th

inkC

ente

r de

skto

p lin

e. E

qual

ly im

port

ant w

ould

be

Leno

vo’s

gain

ing

acce

ss to

IBM

’s in

tern

atio

nal

expe

rtise

, esp

ecia

lly in

are

as su

ch a

s the

m

anag

emen

t of m

anuf

actu

ring

and

dist

ribut

ion

chan

nels

in th

e 16

0 co

untr

ies.”

(Wu,

200

5, p

. 18

).“a

s wel

l as g

ain

tech

nolo

gy a

nd e

xper

tise

to

com

plem

ent i

ts e

xist

ing

firm

-spe

cific

ad

vant

ages

in C

hina

” (U

NCT

AD, 2

006,

p. 1

63)

“As o

ne se

nior

man

ager

com

men

ted,

‘The

de

al h

as e

nhan

ced

our t

echn

olog

y an

d in

nova

tive

capa

bilit

ies b

y at

leas

t 5 y

ears

. M

ore

impo

rtan

tly, w

e ha

ve th

e w

orld

-cla

ss

man

ager

ial t

eam

from

IBM

, and

that

is

inva

luab

le’ (

Leno

vo, p

erso

nal c

omm

unic

atio

n,

May

, 200

5).”

(Den

g, 2

007,

p. 7

6)

Nan

jing

Auto

mob

ile

MG

Rove

rU

nite

d Ki

ngdo

m

(200

5)

“Nan

jing

obta

ined

MG

Rove

r’s e

ngin

e pl

ant a

nd

othe

r fac

ilitie

s, fi

ve R

over

car

bra

nds,

the

oppo

rtun

ity to

sell

in E

urop

e, a

nd a

n ex

istin

g ne

twor

k of

pro

cure

men

t, se

lling

, and

serv

ice

in

Euro

pe.”

(Rui

and

Yip

, 200

8, p

. 220

)

“All

of th

ese

asse

ts w

ere

expe

cted

by

Nan

jing

to p

rodu

ce c

ompe

titiv

e ca

rs so

as t

o ob

tain

a

stro

nger

mar

ket p

ositi

on in

Chi

na a

nd a

n ex

port

ing

posit

ion

in E

urop

e. […

] Ano

ther

was

to

att

ract

Chi

nese

cus

tom

ers [

…] b

y ‘lo

caliz

ing’

th

e br

and.

” (R

ui a

nd Y

ip, 2

008,

p. 2

20)


Chin

ese

com

pany

Fore

ign

inve

stm

ent

Coun

try

(Yea

r)As

set/

adva

ntag

e so

ught

Retu

rns

Heilo

ngjia

ng

Dong

ning

Hua

xin

Indu

stry

and

Tra

de

Grou

p

Arm

ada

(join

t ve

ntur

e)Ru

ssia

(200

4)“C

over

ing

an a

rea

of 4

0,00

0 he

ctar

es, A

rmad

a is

not o

nly

the

larg

est S

ino-

Russ

ian

agric

ultu

ral

coop

erat

ion

proj

ect b

ut a

lso th

e bi

gges

t far

m in

th

e Ru

ssia

n Fa

r Eas

t.” (W

u an

d Li

u, 2

013)

“It r

aise

s 30,

000

pigs

a y

ear a

nd g

row

s so

ybea

ns a

nd c

orn

that

is so

ld in

loca

l mar

kets

or

ship

ped

back

to C

hina

.” (S

tanw

ay, 2

013)

“Chi

nese

cor

pora

tions

are

invo

lved

in

prod

ucin

g fo

od in

nei

ghbo

urin

g co

untr

ies f

or

the

dom

estic

mar

ket,

one

exam

ple

bein

g th

e 40

0,00

0 he

ctar

e fa

rm o

n th

e Ch

ina–

Russ

ia

bord

er jo

intly

ow

ned

by C

hina

’s Hu

axin

Gro

up

and

Russ

ia’s

Arm

ada.

” (M

orto

n, 2

013)

Shen

yang

Mac

hine

To

ol G

roup

(SYM

G)Sc

hies

s Gm

bH

Germ

any

(200

4)“S

YMG’

s str

ateg

y th

roug

h its

acq

uisit

ion

of

Schi

ess w

as n

ot ju

st to

ther

eby

gain

acc

ess t

o ne

w m

arke

ts, f

irst i

n Eu

rope

and

the[

n]

wor

ldw

ide.

It w

as a

lso to

dra

w o

n th

e sk

ills a

nd

tech

nolo

gy o

f the

Ger

man

com

pany

’s de

signe

rs

and

engi

neer

s to

prod

uce

a w

hole

new

ge

nera

tion

of m

achi

ne to

ols [

...].”

(Hat

ters

ley,

2014

)

“‘SY

MG

mac

hine

s are

bei

ng d

evel

oped

and

br

ough

t to

read

ines

s for

serie

s pro

duct

ion

usin

g Ge

rman

y’s t

echn

olog

ical

ly h

igh

leve

ls of

en

gine

erin

g ex

pert

ise a

nd th

en […

] to

be

man

ufac

ture

d [in

Chi

na] a

t an

econ

omic

ally

vi

able

cos

t,’ e

xpla

ins D

r Mar

cus O

tto,

Dire

ctor

of

Sch

iess

Tech

. ‘[…

] at S

chie

ss Te

ch’s

berli

n [s

ic] o

ffice

eng

inee

rs fr

om te

n Eu

rope

an

coun

trie

s are

wor

king

clo

sely

with

Chi

nese

co

lleag

ues t

o de

velo

p eq

uipm

ent f

or th

e w

orld

mar

ket.

One

of t

he fi

rst r

esul

ts o

f thi

s co

llabo

ratio

n is

our n

ew V

IVA

TURN

4, [

…]

whi

ch is

des

igne

d he

re in

Ber

lin fo

r the

Eu

rope

an m

arke

t and

ass

embl

ed […

] in

Shen

yang

.’” (H

atte

rsle

y, 20

14)

Shag

ang

Thys

sen-

Krup

pSt

ahlw

erke

Germ

any

(200

2)“I

n an

unp

rece

dent

ed c

ampa

ign,

bot

h th

e Ph

oeni

x st

eelw

orks

(“Ea

st”)

and

the

coki

ng

plan

t Kai

sers

tuhl

and

larg

e pa

rts o

f the

W

estfa

lenh

ütte

wer

e so

ld to

a C

hine

se

cons

ortiu

m (“

Shag

ang”

).” [t

rans

late

d fr

om

Germ

an] (

ww

w.in

dust

riede

nkm

al.d

e)

“A c

ompl

ete

stee

lwor

ks in

clud

ing

blas

t fu

rnac

es, r

ollin

g m

ills a

nd si

nter

ing

plan

t sha

ll be

disa

ssem

bled

into

mill

ions

of i

ndiv

idua

l pa

rts,

to su

bseq

uent

ly re

build

it in

Chi

na’s

Zhan

gjia

gang

, 9,0

00 k

ilom

etre

s aw

ay.”

[tra

nsla

ted

from

Ger

man

] (Do

hmen

and

Sc

hmid

, 200

2)


Chin

ese

com

pany

Fore

ign

inve

stm

ent

Coun

try

(Yea

r)As

set/

adva

ntag

e so

ught

Retu

rns

Haie

rM

eneg

hett

i re

frig

erat

or

plan

t

Italy

(200

1)“H

aier

saw

this

acqu

isitio

n as

pro

vidi

ng th

e op

port

unity

to d

evel

op n

ew p

rodu

cts f

rom

a

Euro

pean

man

ufac

turin

g ba

se.”

(Bon

aglia

et a

l.,

2007

, p. 3

77)

“[…

] buy

ing

Men

eghe

tti-p

rodu

ced

built

-in

oven

s and

hob

s to

mar

ket t

hem

in C

hina

un

der t

he H

aier

bra

nd n

ame.

” (B

onag

lia e

t al.,

20

07, p

. 377

)

Holly

Gro

up (H

olly

Ho

ldin

gs (U

SA) L

td)

Phili

ps

Sem

i-co

nduc

tors

(C

DMA

hand

-se

t ref

eren

ce

desig

n op

erat

ion)

, es

tabl

ishin

g Ho

lly c

om-

mun

icat

ion

Grou

p In

c.

Uni

ted

Stat

es

(200

1)“T

he H

olly

Gro

up p

rovi

des a

n ex

ampl

e of

fo

reig

n ac

quisi

tion

aim

ed a

t sec

urin

g pr

oprie

tary

tech

nolo

gy […

] A m

ajor

step

fo

rwar

d to

war

ds im

plem

entin

g th

is st

rate

gy

was

Hol

ly’s

acqu

isitio

n in

Sep

tem

ber 2

001

of

the

CDM

A ha

nd-s

et re

fere

nce

desig

n op

erat

ion

from

Phi

lips S

emic

ondu

ctor

s in

the

USA

.” (C

hild

an

d Ro

drig

ues,

200

5, p

. 392

)

“Phi

lips S

emic

ondu

ctor

s agr

eed

to tr

ansf

er to

Ho

lly H

oldi

ngs a

ll eq

uipm

ent,

asse

ts a

nd

asso

ciat

ed k

now

-how

, alo

ngsid

e in

telle

ctua

l pr

oper

ty ri

ghts

, whi

ch w

ere

embo

died

and

en

gend

ered

by

the

activ

ity o

f han

d-se

t re

fere

nce

desig

ns. F

urth

erm

ore,

the

Holly

Gr

oup

also

ben

efite

d […

] by

gain

ing

an

excl

usiv

e lic

ense

to h

andl

e an

d pr

oces

s the

CD

MA

soft

war

e pr

otoc

ol th

at e

arlie

r had

bee

n de

velo

ped

by P

hilip

s. T

he la

tter

pro

mize

d [s

ic]

to su

pply

Hol

ly a

nd it

s (pr

ospe

ctiv

e)

cust

omer

s with

key

silic

on-c

ompo

nent

s, so

th

at H

olly

cou

ld c

ontin

ue th

e pr

oces

s of

deve

lopi

ng a

nd m

arke

ting

thes

e lic

ense

d pr

oduc

ts.”

(War

ner e

t al.,

200

4, p

. 335

)Hu

awei

Te

chno

logi

esR&

D ce

ntre

sIn

dia,

Ge

rman

y, Ja

pan,

U

nite

d St

ates

, etc

. (s

ince

199

9)

“Hua

wei

[…] p

rovi

des a

noth

er e

xam

ple

of h

ow

Gree

nfie

ld in

vest

men

t in

R&D

can

help

Chi

nese

co

mpa

nies

be

clos

e to

sour

ces o

f kno

wle

dge

and

lear

ning

.” (D

eng,

200

7, p

. 75)

“The

se v

entu

res [

…] a

im to

offs

et a

reas

of

wea

knes

s in

Chin

a’s i

nnov

atio

n sy

stem

, to

acce

ss fo

reig

n te

chno

logi

cal a

sset

s, a

nd to

ca

ptur

e th

e ex

tern

aliti

es c

reat

ed b

y ho

st-

coun

try

tech

nolo

gy c

lust

ers (

ww

w.h

uaw

ei.

com

.cn)

.” (D

eng,

200

7, p

. 75)


Chin

ese

com

pany

Fore

ign

inve

stm

ent

Coun

try

(Yea

r)As

set/

adva

ntag

e so

ught

Retu

rns

Haie

rHa

ier

Indu

stria

l Pa

rk

(gre

enfie

ld),

Sout

h Ca

rolin

a;

mar

ketin

g ce

ntre

, New

Yo

rk; d

esig

n an

d R&

D ce

ntre

s, L

os

Ange

les a

nd

Bost

on

Uni

ted

Stat

es

(sin

ce 1

999)

“For

Hai

er, i

nves

tmen

t in

the

U.S.

is c

erta

inly

m

otiv

ated

by

fact

ors s

uch

as e

xpan

ding

the

rang

e of

pro

duct

s it s

ells

and

bypa

ssin

g no

n-ta

riff b

arrie

rs o

n im

port

s of C

hine

se a

pplia

nces

. […

] In

the

wor

ds o

f one

seni

or m

anag

er, ‘

By

sett

ing

up th

e pr

oduc

tion

plan

t in

the

U.S.

, we

aim

to d

raw

on

Amer

ica’

s exp

ertis

e in

des

ign,

re

sear

ch, i

nnov

atio

n, a

nd te

chno

logy

, as w

ell a

s to

incr

ease

our

glo

bal b

rand

.’ (H

aier

Gro

up,

pers

onal

com

mun

icat

ion,

Aug

ust,

2004

).”

(Den

g, 2

007,

p. 7

5)

“The

maj

or ro

le o

f the

se R

&D

cent

ers i

s to

deve

lop,

acq

uire

, and

tran

sfer

tech

nolo

gy, a

nd

to h

elp

the

head

offi

ce d

evel

op h

ome

appl

ianc

es th

at m

eet t

he n

eeds

and

wan

ts o

f lo

cal c

onsu

mer

s (Ha

ier G

roup

, per

sona

l co

mm

unic

atio

n, A

ugus

t, 20

04).”

(Den

g, 2

007,

p.

75)

Gala

nzR&

D ce

ntre

, Se

attle

Uni

ted

Stat

es

(199

8)“G

alan

z […

] has

inve

sted

[…] i

n an

R&

D ce

nter

in

Sea

ttle

, Was

hing

ton

in o

rder

to im

prov

e its

ow

n pr

oprie

tary

tech

nolo

gica

l cap

abili

ty.”

(Den

g, 2

007,

p. 7

5)

“The

incr

ease

d te

chno

logi

cal s

tren

gth

help

ed

Gala

nz n

ot o

nly

beco

me

the

wor

ld’s

larg

est

man

ufac

ture

r of m

icro

wav

e ov

ens,

but

also

bu

ild u

p its

stro

ng in

tern

atio

nal b

rand

for t

he

futu

re.”

(Den

g, 2

007,

p. 7

5)Ch

ina

Petr

oleu

m

and

Nat

ural

Gas

Co

rpor

atio

n

Oil-

rela

ted

proj

ects

Peru

and

Ca

nada

(s

ince

199

2);

Suda

n,

Vene

zuel

a,

Kaza

khst

an

(sin

ce 1

996)

“exp

lora

tion

and

expl

oita

tion

of o

il” (C

ai, 1

999,

p.

869

)“O

n 15

Sep

tem

ber 1

997

the

first

ship

men

t of

crud

e oi

l obt

aine

d fr

om th

e co

mpa

ny’s

over

seas

inve

stm

ent w

as b

roug

ht b

ack

to

Chin

a.”*

** (C

ai, 1

999,

p. 8

69)


Chin

ese

com

pany

Fore

ign

inve

stm

ent

Coun

try

(Yea

r)As

set/

adva

ntag

e so

ught

Retu

rns

San

Huan

New

M

ater

ial H

igh-

Tech

In

c., a

nd C

hina

N

atio

nal

Non

ferr

ous M

etal

s Im

port

and

Exp

ort

Com

pany

Mag

ne-

quen

ch

(maj

ority

sh

are)

Uni

ted

Stat

es

(199

5)“M

agne

quen

ch h

ad a

uni

que

expe

rtise

in th

e m

anuf

actu

re o

f hig

h-po

wer

ed n

eody

miu

m

mag

nets

, whi

ch it

pio

neer

ed in

the

1980

s for

its

pare

nt c

ompa

ny, G

ener

al M

otor

s [...

]” (T

kaci

k,

2008

)

“in 2

004,

Mag

nequ

ench

, tog

ethe

r with

its m

erge

r pa

rtner

NEO

Mat

eria

l Tec

hnol

ogie

s (an

d its

inte

-gr

ated

Chi

nese

join

t-ven

ture

par

tner

s), su

pplie

d ab

out 8

0 pe

rcen

t of t

he w

orld

mar

ket s

hare

of

neod

ymiu

m a

nd ra

re-e

arth

oxid

e po

wde

rs [.

..]

Mag

nequ

ench

’s cr

own-

jew

el te

chno

logie

s had

al

read

y see

ped

off u

nnot

iced

to C

hina

, and

the

entir

e pr

oduc

tion

line

was

alre

ady b

eing

dism

an-

tled

in th

e Un

ited

Stat

es. [

...] N

EO a

nd it

s Mag

-ne

quen

ch af

filiat

e re

port

that

85

perc

ent o

f the

ir m

anuf

actu

ring f

acilit

ies a

re in

Chi

na” (

Tkac

ik, 2

008)

Chin

a O

cean

Fi

shin

g Co

rpor

atio

n>5

0 w

holly

ow

ned

subs

idia

ries,

jo

int v

entu

res

and

coop

erat

ive

subs

idia

ries

in a

lmos

t 20

coun

trie

s, in

cludi

ng th

e Un

ited

Stat

es,

Iran,

and

Ar

gent

ina

as

wel

l as i

n W

est A

frica

n na

tions

(1

985-

1995

)

“Ope

ratin

g a

fleet

of m

ore

than

800

ship

s of

vario

us ty

pes a

nd e

mpl

oyin

g 15

,000

sailo

rs a

nd

land

-bas

ed w

orke

rs a

broa

d” (D

eng,

200

4, p

. 11

)

“[I]t

s ann

ual c

atch

of s

ever

al h

undr

ed

thou

sand

tons

of s

eafo

od is

all

sent

bac

k to

th

e ra

pidl

y gr

owin

g Ch

ines

e m

arke

t.” (D

eng,

20

04, p

. 11)

Shou

gang

(Cap

ital)

Iron

and

Stee

l Cor

pM

asta

En

gine

erin

g an

d De

sign

Inc.

(70%

)

Uni

ted

Stat

es

(198

8)“o

btai

n ac

cess

to th

e U

S co

mpa

ny’s

high

te

chno

logy

des

ign

capa

bilit

y in

stee

l rol

ling

and

cast

ing

equi

pmen

t” (W

all,

1997

, pp.

24-

25);

“Thr

ough

this

inve

stm

ent S

houg

ang

is ab

le to

us

e M

asta

’s 65

0 bl

uepr

ints

and

mic

rofil

ms,

46

soft

war

e pa

ckag

es, 4

1 te

chni

cal p

aten

ts a

nd 2

re

gist

ered

trad

e m

arks

in w

ell-a

dvan

ced

rolli

ng

and

cont

inuo

us c

astin

g te

chno

logi

es. M

asta

be

cam

e Sh

ouga

ng’s

rese

arch

-and

-dev

elop

men

t ba

sis o

vers

eas.”

(Zha

n, 1

995,

p. 8

9)

“Thi

s inv

estm

ent h

as si

gnifi

cant

ly

stre

ngth

ened

Sho

ugan

g’s a

bilit

ies t

o de

sign

and

man

ufac

ture

hea

vy m

etal

lurg

ical

eq

uipm

ent a

nd in

crea

sed

the

inte

rnat

iona

l co

mpe

titiv

enes

s of C

hina

’s iro

n an

d st

eel

indu

stry

. […

]


Chin

ese

com

pany

Fore

ign

inve

stm

ent

Coun

try

(Yea

r)As

set/

adva

ntag

e so

ught

Retu

rns

In la

te 1

989,

Sho

ugan

g an

d its

subs

idia

ry

Mas

ta e

stab

lishe

d a

join

t ven

ture

in B

eijin

g,

Mas

ta E

ngin

eerin

g Be

ijing

Co.

Ltd.

With

the

adva

nced

tech

nolo

gy fr

om M

asta

, the

ven

ture

un

dert

ook

a nu

mbe

r of l

arge

tech

nolo

gica

l re

nova

tion

proj

ects

in C

hina

, inc

ludi

ng o

ne

rese

arch

-and

-dev

elop

men

t pro

ject

list

ed a

s a

key

one

in C

hina

’s Se

vent

h N

atio

nal

Deve

lopm

ent P

lan.

Thr

ough

join

t res

earc

h an

d de

velo

pmen

t with

Uni

ted

Stat

es e

xper

ts

and

hand

s-on

trai

ning

in b

oth

Chin

a an

d th

e U

nite

d St

ates

, Chi

nese

eng

inee

rs so

on

beca

me

fam

iliar

with

the

mos

t adv

ance

d te

chno

logy

and

kno

w-h

ow in

the

met

allu

rgic

al

indu

stry

.” (Z

han,

199

5, p

. 89)

Ch

ina

Met

allu

rgic

al

Impo

rt a

nd E

xpor

t Co

rp

Chan

nar

Min

e jo

int

vent

ure

with

CR

A

Aust

ralia

(1

987)

“ext

ract

ion

of ir

on o

re”

(Cai

, 199

9, p

. 868

)“T

he o

re is

take

n by

con

veyo

r bel

t to

Para

burd

oo, w

here

it is

tran

spor

ted

– w

ith

prod

uct f

rom

the

min

e th

ere

and

from

Eas

tern

Ra

nge

– by

the

Ham

ersle

y an

d Ro

be R

iver

ra

ilway

to th

e po

rt o

f Dam

pier

, and

then

lo

aded

on

ship

s, m

any

head

ed fo

r Chi

na. [

…]

The

Chan

nar o

re b

ody

was

iden

tifie

d as

the

mos

t sui

tabl

e fo

r Chi

nese

stee

l mill

s, […

] pr

oduc

tion

bega

n in

Janu

ary

1990

, the

firs

t sh

ipm

ent b

eing

sent

from

Dam

pier

to

Shan

ghai

.” (C

allic

k, 2

010)

“With

in th

e 30

-yea

r dur

atio

n of

the

join

t ve

ntur

e th

ere

will

be

a st

able

ship

men

t of 2

00

mill

ion

tons

of q

ualit

y iro

n or

e fr

om A

ustr

alia

to

Chi

na.”*

***

(Cai

, 199

9, p

. 869

)


Chin

ese

com

pany

Fore

ign

inve

stm

ent

Coun

try

(Yea

r)As

set/

adva

ntag

e so

ught

Retu

rns

Chin

a Bi

cycl

es

Corp

orat

ion

Purc

hase

of

an A

mer

ican

bi

cycl

e co

mpa

ny

Uni

ted

Stat

es“i

n or

der t

o ga

in a

cces

s to

the

tech

nolo

gy fo

r pr

oduc

ing

the

high

spec

ifica

tion

mod

els i

n de

man

d in

the

Uni

ted

Stat

es a

nd E

urop

e”

(Wal

l, 19

97, p

. 24)

“The

com

pany

tran

sfer

red

the

tech

nolo

gy

back

to it

s She

nzhe

n pl

ant w

hich

now

has

a

high

ly su

cces

sful

exp

ort m

arke

t.” (W

all,

1997

, p.

24)

;“I

n th

is w

ay, n

ot o

nly

was

the

tech

nolo

gy it

self

tran

sfer

red

but a

lso th

e ab

ility

to tr

ansla

te it

in

to p

ract

ical

com

mer

cial

use

.” (D

eng,

200

4,

p. 1

1)Sh

angh

ai B

aosh

an

Iron

and

Stee

l Co

rpor

atio

n

Six

join

t ve

ntur

esAu

stra

lia,

Braz

il, S

outh

Af

rica

“to

gain

acc

ess t

o bo

th ir

on-o

re m

inin

g an

d st

eel m

arke

ting”

(Den

g, 2

004,

p. 1

1)“B

etw

een

1990

and

199

4, th

e co

mpa

ny

ship

ped

over

10

mill

ion

tons

of m

iner

al b

ack

to C

hina

, sav

ing

an e

stim

ated

$6

mill

ion

in

fees

and

cha

rges

.” (D

eng,

200

4, p

. 11)

*

Orig

inal

sou

rce:

Gua

ngdo

ng Y

into

ng In

vest

men

t Hol

ding

Gro

up C

ompa

ny L

imite

d N

ew E

nerg

y Ve

hicl

e D

evel

opm

ent P

lan

(201

1-20

20).

**

Orig

inal

sou

rce:

“Ang

ang

to In

vest

and

Bui

ld F

acto

ry in

the

Uni

ted

Sta

tes”

, Ans

han

Iron

and

Ste

el G

roup

Cor

pora

tion

(May

17,

201

0) (C

hine

se tr

ansl

ated

ver

sion

).**

* O

rigin

al s

ourc

e: R

enm

in R

ibao

, 16

Sep

tem

ber 1

997,

p. 1

. **

** O

rigin

al s

ourc

e: J

iang

, B

olun

, an

d Zh

enfa

ng Z

ou (

1996

). Fo

reig

n In

vest

men

t of

Chi

nese

Ent

erpr

ises

(B

eijin

g: E

cono

mic

Sci

ence

Pre

ss),

pp.

18-1

9.


Chinese investments, and especially those in advanced economies, have as their objective the pursuit of new export markets overseas or the enhancement of access to existing export markets (Knoerich, 2012). Not only are the investing firms’ export earnings enhanced by such activities, but their Chinese suppliers benefit in similar ways, with attendant financial benefits accruing directly within the Chinese economy from profits and foreign exchange earnings.

A final benefit is that OFDI has made financing from overseas sources possible, opening up a viable alternative to domestic sources of capital (Wall, 1997, p. 16; Deng, 2004, p. 15). The availability of capital and foreign exchange has been distorted in China, where SOEs are still the primary recipients of loans from State banks. Such capital market imperfections have, for instance, forced small- and medium-sized enterprises to rely more on informal finance and export earnings to finance and expand their operations. OFDI has broadened the overall pool of financing options available to all kinds of Chinese firms.

Figure 3. Financial returns from Chinese OFDI

Source:

0

5

10

15

20

25

30

35

4.6

4.8

5

5.2

5.4

5.6

5.8

6

6.2

2009 2010 2011 2012 2013

Rate of return Direct investment income Reinvested earnings

% US$ billion

IMF Balance of Payments (BOP) Statistics, UNCTADStat (for FDI positions). Rates of return are calculated by dividing direct investment income in year t by the average of the FDI positions for years t and t-1 (UNCTAD, 2013).


3.2. Intangible benefits and the enhancement of capabilities

Beyond immediate financial gains, Chinese firms investing abroad have enjoyed intangible benefits from the pursuit of technologies, managerial and marketing skills, brands and various forms of tacit know-how available in foreign locations. Once these intangible resources reach the home economy – which would normally occur through within-firm transfer mechanisms – and are assimilated and integrated into domestic economic activities, Chinese firms enjoy greater access to capabilities that are new or unfamiliar to them. Economic development occurs when these acquired capabilities support Chinese companies in the process of catching up in technological and other fields, help improve efficiency in resource use or advance sustainability in the economy in other ways.

The amount, nature and type of capabilities obtained by Chinese companies through OFDI differ with the entry mode of investment. Greenfield investments can yield access to capabilities through reverse spillovers, reverse competition and demonstration effects, and reverse labour turnover (Knoerich, 2012). Chinese OFDI in R&D activities has also expanded at a brisk pace (OECD, 2007, p. 22). With advanced economies as the dominant destination for this kind of OFDI (UNCTAD, 2005, p. 150), catch-up has been an important motivation (Von Zedtwitz, 2005, p. 121). Another possibility has been inter-firm cooperation, such as through joint ventures between Chinese and foreign firms (Wall, 1997, pp. 15-16). Mergers and acquisitions (M&As) are generally known to be a particularly direct and effective means of gaining access to firm-specific capabilities (Dunning, 1998; Inkpen, 1998; Ranft and Lord, 2002), but they are capital-intensive undertakings. Chinese firms have been very active participants in cross-border acquisitions in advanced economies, as the cases of Lenovo’s acquisition of IBM’s PC business (United States) and of Medion (Germany), Geely’s acquisition of Volvo (Sweden), Shuanghui’s acquisition of Smithfield (United States), CNOOC’s acquisition of Nexen (Canada) and some other cases listed in table 2 exemplify.

A few studies have documented internal transfers of (technological) know-how, brand recognition and other capabilities back to company headquarters in China (Knoerich, 2010; Zhan, 1995;


Deng, 2004), and the examples of Zhuhai Yintong, Anshan, Huawei, Shougang, Geely, CNOOC, China Qianjiang Group, Lenovo, Nanjing Automobile, Shenyang Machine Tool Group, Haier, Holly Group, Galanz, San Huan New Material High-Tech Inc. and China Bicycles Corporation in table 2 provide additional evidence of the existence of such “capability returns”. Many of these documented activities have occurred in sectors of key importance to China’s economic development, such as in the machinery and equipment, electronics and automotive industries. In at least the first four of these cases, documentation (cited in table 2) explicitly highlights the important link to China’s development priorities, such as the need to mitigate shortcomings in the country’s national innovation system (Deng, 2007, p. 75).

Despite substantial progress, especially in recent years, China has in most areas not yet reached a level of technological sophistication and innovation comparable with the international leaders, and its firms remain constrained by competitive and technological weaknesses. There is an intense debate between those who believe in the ability of Chinese firms to catch up and become strong international competitors and technology leaders (Rasking and Lindenbaum, 2004; Sigurdson, 2005, p. 15; Zeng and Williamson, 2003, p. 93; Brandt and Thun, 2010), and those who view this potential progress rather sceptically, citing technological and managerial deficiencies, lack of marketing and branding skills, weak innovation performance, low productivity, and low product variety and quality (Nolan, 2001, 2002; Alon, 2012; Yang, 2005, pp. 49-54

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Transnational Corporations, Vol. 23, No. 2, Article 1: Has outward … · 2020. 9. 2. · Transnational Corporations, Vol. 23, No. 2 3 go abroad as early as the 1980s, when China