The Pattern and Magnitude of China’s Outward FDI in Asia

1. The Pattern and Magnitude of China’s Outward FDI in Asia Shaoming Cheng Roger Stough ICRIER Project on Intra-Asian FDI Flows New Delhi, India April 25-26, 2007

2. Outline • Why China’s outward FDI? • Theories on outward FDI from developing countries • History and development of China’s outward FDI • Data sources and qualifications • Characteristics and geographic distribution • Pulling and pushing factors • Conclusions

3. Research Background • China is known as: • Tremendous amount of FDI inflows • Top FDI destination in the world • Global manufacturing hub • But, China has not been recognized as an important FDI exporting country • By 2004, $15B cumulative outward FDI in 150 countries • In 2005 alone, $11B outward FDI

4. Theories • Lecraw (1977): labor-intensive tech • Wells (1983): different sources for OLI advantages • Lall (1983) and Tolentino (1993): cultural similarity • Dunning (1981, 1986): investment development path • Asset-seeking FDI: Cantwell, 1989; Dunning, 1998; Porter, 1990, 1998; Wesson, 1993

5. History and Development • Political opposition and emergence of China’s outward FDI • Ideological bias • Small scale of FDI • Political acceptance and early boom • Part of “economic reform” • Political enthusiasm and rapid expansion • “going abroad” strategy

6. Data Sources • State Administration of Foreign Exchange (SAFE) • “Balance of payments” financial data • Aggregated • Ministry of Commence (MOFCOM) • Approved overseas investment • Disaggregated by country and industry • Focus on MOFCOM data

7. Data Qualifications • Approval is required or not • Approval vs. execution (when, how much…) • Initial approval vs. reinvested earnings • Non-trade FDI only • Imposed FDI patterns through the approval process • Unauthorized and illegal capital outflows • HK and Macau as “foreign” destinations

8. Characteristics • Rapid growth, particularly after the “going abroad” strategy in 2001 • Lack of correlation between China’s FDI outflows and GDP growth • Lack of correlation between China’s FDI outflows and FDI inflows

9. FDI and GDP

10. FDI Outflows and Inflows

11. Geographic Distribution

12. Geographic Distribution (Cont.)

13. Geographic Distribution in Asia

14. Average Project Scale

15. Average Project Scale in Asia

16. Pulling Factors • Resource-acquiring FDI • Natural resources and energy • ASEAN countries • Market-expanding and efficiency-improving FDI • Intertwined and complemented • Avoid trade barriers • ASEAN countries • Asset-seeking FDI • Local innovation capabilities • Korea

17. Pushing Factors • Increasing domestic competition, excess production capacity and sliding profit margins • Abundant foreign exchange reserves • Huge and still rising demands for natural resources • Chinese governments’ determination and associated “going abroad” policy and financial support

18. Conclusions • Tremendous growth • Concentration in Asia • Increasing role of Korea and Southeast Asian countries • Strong pulling and pushing factors • Continued outward FDI growth • China emerges as a large FDI sourcing country