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 %
4 Transnational Corporations, Vol. 23, No. 2
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.
Transnational Corporations, Vol. 23, No. 2 5
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
6 Transnational Corporations, Vol. 23, No. 2
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.
Transnational Corporations, Vol. 23, No. 2 7
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.
8 Transnational Corporations, Vol. 23, No. 2
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
Transnational Corporations, Vol. 23, No. 2 9
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
10 Transnational Corporations, Vol. 23, No. 2
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
Transnational Corporations, Vol. 23, No. 2 11
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).
12 Transnational Corporations, Vol. 23, No. 2
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
Transnational Corporations, Vol. 23, No. 2 13
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
14 Transnational Corporations, Vol. 23, No. 2
Tabl
e 2.
Exa
mpl
e ca
ses o
f Chi
nese
inve
stm
ents
abr
oad
Chin
ese
com
pany
Fore
ign
inve
stm
ent
Coun
try
(Yea
r)As
set/
adva
ntag
e so
ught
Retu
rns
Cons
ortiu
m le
d by
M
MG
Lim
ited
(incl
udin
g CI
TIC
Met
al)
Las B
amba
s co
pper
min
e (a
cqui
red
from
Gl
enco
re
Xstr
ata)
Peru
(201
4)“C
hina
gav
e its
app
rova
l to
the
mer
ger [
of
Glen
core
with
Xst
rata
] afte
r Gle
ncor
e ag
reed
to
sell
its st
ake
in X
stra
ta’s
copp
er m
inin
g pr
ojec
t in
Per
u to
a b
uyer
app
rove
d by
Chi
nese
au
thor
ities
.” (B
BC, 2
014)
“The
min
ing
gian
t also
agr
eed
to su
pply
a
min
imum
vol
ume
of c
oppe
r con
cent
rate
to
Chin
a fo
r a p
erio
d of
eig
ht y
ears
.” (B
BC, 2
014)
Shua
nghu
i In
tern
atio
nal
Smith
field
Fo
ods I
nc.
Uni
ted
Stat
es
(201
3)“e
nabl
ing
Shua
nghu
i to
lear
n fr
om th
e Vi
rgin
ia-
base
d co
mpa
ny’s
food
safe
ty a
nd p
rodu
ctio
n te
chno
logy
.” (T
aden
a, 2
013)
“Sm
ithfie
ld, [
…] a
nd S
huan
ghui
[…] h
ave
said
th
eir j
oini
ng w
ill in
crea
se U
.S. p
ork
expo
rts t
o Ch
ina”
. (Ta
dena
, 201
3)Zh
uhai
Yin
tong
En
ergy
Co.
, Ltd
. Al
tair
Nan
o-te
chno
logi
es
(Alta
ir N
ano)
Uni
ted
Stat
es
(201
1)“t
o ob
tain
Alta
ir N
ano’
s lith
ium
tita
nate
bat
tery
te
chno
logy
for C
hina
” (S
zam
ossz
egi,
2012
, p.
100)
“it i
s one
of t
he te
chno
logi
es li
sted
in C
hina
’s 86
3 Te
chno
logy
Pla
n. […
] Yin
tong
’s N
ew
Ener
gy V
ehic
le D
evel
opm
ent P
lan
for 2
011-
2020
mak
es c
lear
that
the
Alta
ir N
ano
inve
stm
ent w
as u
nder
take
n w
ith th
e st
ate’
s de
velo
pmen
t obj
ectiv
es in
min
d […
].‘Th
roug
h ho
ldin
g sh
ares
of A
mer
ican
Alta
irnan
o Co
mpa
ny, Y
into
ng G
roup
has
intr
oduc
ed th
e gl
obal
ly m
ost a
dvan
ced
cell
anod
e m
ater
ial
tech
nolo
gy –
lith
ium
tita
nate
tech
nolo
gy in
to
Chin
ese
mar
ket.
Yint
ong
Grou
p pu
rcha
ses
dedi
cate
d lit
hium
tita
nate
mat
eria
l of
Alta
irnan
o fo
r pro
duct
ion
of c
ell c
ells
{sic
} in
Chin
a. […
] it p
osse
sses
supe
rior r
elia
bilit
y in
ap
plic
atio
ns o
f nat
iona
l def
ense
, nat
iona
l in
fras
truc
ture
and
oth
er e
quip
men
t’.*”
(S
zam
ossz
egi,
2012
, p. 1
00)
Transnational Corporations, Vol. 23, No. 2 15
Chin
ese
com
pany
Fore
ign
inve
stm
ent
Coun
try
(Yea
r)As
set/
adva
ntag
e so
ught
Retu
rns
Ansh
an Ir
on &
St
eel G
roup
Stee
l De
velo
pmen
t Co
. (14
%
stak
e) a
nd
cons
truc
tion
of a
ssoc
iate
d st
eel p
lant
s
Uni
ted
Stat
es
(201
0)“A
spok
esm
an fo
r Ans
han
[…] s
aid
[…] t
he
Miss
issip
pi c
ompa
ny u
ses a
n el
ectr
onic
-furn
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)
16 Transnational Corporations, Vol. 23, No. 2
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)
Transnational Corporations, Vol. 23, No. 2 17
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)
18 Transnational Corporations, Vol. 23, No. 2
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)
Transnational Corporations, Vol. 23, No. 2 19
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)
20 Transnational Corporations, Vol. 23, No. 2
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)
Transnational Corporations, Vol. 23, No. 2 21
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
. […
]
22 Transnational Corporations, Vol. 23, No. 2
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
)
Transnational Corporations, Vol. 23, No. 2 23
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
$6
mill
ion
in
fees
and
cha
rges
.” (D
eng,
200
4, p
. 11)
*
Orig
inal
sou
rce:
Gua
ngdo
ng Y
into
ng In
vest
men
t Hol
ding
Gro
up C
ompa
ny L
imite
d N
ew E
nerg
y Ve
hicl
e D
evel
opm
ent P
lan
(201
1-20
20).
**
Orig
inal
sou
rce:
“Ang
ang
to In
vest
and
Bui
ld F
acto
ry in
the
Uni
ted
Sta
tes”
, Ans
han
Iron
and
Ste
el G
roup
Cor
pora
tion
(May
17,
201
0) (C
hine
se tr
ansl
ated
ver
sion
).**
* O
rigin
al s
ourc
e: R
enm
in R
ibao
, 16
Sep
tem
ber 1
997,
p. 1
. **
** O
rigin
al s
ourc
e: J
iang
, B
olun
, an
d Zh
enfa
ng Z
ou (
1996
). Fo
reig
n In
vest
men
t of
Chi
nese
Ent
erpr
ises
(B
eijin
g: E
cono
mic
Sci
ence
Pre
ss),
pp.
18-1
9.
24 Transnational Corporations, Vol. 23, No. 2
Chinese investments, and especially those in advanced economies, have as their objective the pursuit of new export markets overseas or the enhancement of access to existing export markets (Knoerich, 2012). Not only are the investing firms’ export earnings enhanced by such activities, but their Chinese suppliers benefit in similar ways, with attendant financial benefits accruing directly within the Chinese economy from profits and foreign exchange earnings.
A final benefit is that OFDI has made financing from overseas sources possible, opening up a viable alternative to domestic sources of capital (Wall, 1997, p. 16; Deng, 2004, p. 15). The availability of capital and foreign exchange has been distorted in China, where SOEs are still the primary recipients of loans from State banks. Such capital market imperfections have, for instance, forced small- and medium-sized enterprises to rely more on informal finance and export earnings to finance and expand their operations. OFDI has broadened the overall pool of financing options available to all kinds of Chinese firms.
Figure 3. Financial returns from Chinese OFDI
Source:
0
5
10
15
20
25
30
35
4.6
4.8
5
5.2
5.4
5.6
5.8
6
6.2
2009 2010 2011 2012 2013
Rate of return Direct investment income Reinvested earnings
% US$ 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).
Transnational Corporations, Vol. 23, No. 2 25
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;
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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