Overseas Impacts of China s Outward Direct Investment

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

2 2 Chinese Export Grows at Lower Speed and ODI Rise Up Traditional Way of China Integrating into the World: trade New Way of China Integrating into the World: ODI

3 3 Why is there rapid growth of Chinese ODI? Economic Reality and Policy Choice First, following the investment development path theory, a country s international investment position is closely related with its GNP per capita. In this sense, China s rapid economic development is the foundation of net overseas investment. Second, the increasing domestic constraints constraints in resources and environment are increasing technology is the bottleneck for many domestic firms to thrive ODI can be an escape response to institutional constraint in home country

4 4 Why is there rapid growth of Chinese ODI? Economic Reality and Policy Choice Third, the support from the Chinese government relieve the investors economic and political worries. Going Out strategy One belt, One Road initiative Silk Road Fund AIIB

5 5 Significance with Mixed Feelings Mixed Feelings Concerns: New Colonialism, take away technologies, resources and jobs, etc. Gifts: infrastructure, capital, market, etc. Hard to measure net benefits A changing pattern of Chinese ODI Investment type Target sector Host country s characteristics Host country s policy environment

6 6 Stylized Facts of Chinese ODI Two complementary datasets Statistical Bulletin Statistical Bulletin of China s Outward Foreign Direct Investment official ODI report, updated to 2014 from 2003 Flaws: data is too general and aggregate; only report the first destinations. CGIT data project-level dataset China-Global-Investment-Tracker provided by American Enterprises Institute and Heritage Foundation from January 2005 to December 2015

7 7 SOEs dominate with private enterprises rising central SOEs accounts for of total non-financial ODI on average in But the share of local enterprises exceeded that of CSOEs for the first time in 2014

8 Sector Distribution 8

9 Top 20 Destinations of China s ODI 9

10 [1] The unit for Large Chinese ODI is $million, for SMEs Chinese ODI is $10 thousand. 10 A Domestic-Oriented Chinese Style By number By value Large Chinese ODI Market seeking % % Resource seeking % % Technology seeking % % Efficiency seeking % % SMEs Chinese ODI Trade % % Production (Manufacturing & Processing) % % Construction and real estate % % Explore resource % % R&D % % Industrial park % % Other % %

11 11 Jobs without Enough Technology Transfers Employment of Chinese ODI Firms,

12 12 Jobs without Enough Technology Transfers Country Contribution Liberia Ethiopia Rwanda Nigeria Zambia Local job creation? Yes Yes Yes Yes Yes Local industrialization? No Yes Yes Yes No Technology transfer? No No No No No Overall n.a. Yes Yes Yes Yes African Perceptions of the Economic Impact of Chinese ODI

13 13 Chinese Capital and Market China was mainly a fund provider and in some cases physical presence of Chinese firms did not substantially increase Related with the country s financial repression Facilitate the entry of foreign enterprises, goods and services into China s domestic market.

14 14 Investment integration is different from trade integration Bilateral and multilateral interconnection cross-border investment is often initiated by multinational companies, or the oversea investment makes the companies multinational. infrastructure projects gradually turn into an important approach to enhance bilateral or multilateral relationships. Reshape global economic goverence Concerns associated with Chinese ODI are not the primary concerns in the current global economic governance framework. Chinese ODI brings new elements in investment rules through signing bilateral investment treaties (BITs) AIIB is another contribution to regional and global governance initiated by China.

15 15 Looking Forward 1. Three dynamics reshape Chinese ODI pattern Increasing conflicts Accelerating learning China s domestic structural changes 2. There will be more private ODI Continuously rising domestic production costs Accelerated capital account liberalization. 3. Chinese capital will flow more into developing world, and technology transfers are expected to accelerate.

16 16 Looking Forward 4. Escalating conflicts will push Chinese government and firms to pay more attention to local legal and social context, and keep up with international counterparts in corporate behaviors. Management Guidelines on Staff Management of Overseas Chinese-funded Enterprises (2011) Several Opinions on the Cultural Development of Overseas Chinese Companies (2012) Guidelines for Environmental Protection in Foreign Investment and Cooperation (2013) 5. China will actively expand and protect its interests overseas. In developed host economies: reduce investment barriers and depoliticize foreign regulatory review process. In developing host countries: better protection of its overseas investment.

17 Thank You 17