《Asian Economic Policy Review》2014年第9期刊发我院苟琴与其合作者王碧珺、茅锐共同合作撰写的文章“Overseas Impacts of China’s Outward Direct Investment”
【Abstract】 China’s outward direct investment (ODI) has grown rapidly since 2004. But along with such phenomenal growth is a mixed feeling toward Chinese investments in host countries. This article explores some overseas impacts of Chinese ODI based on an analysis of China’s policy environment and investment patterns. We argue that what Chinese investors bring to host economies includes (i) massive job creation, but limited technology transfers to the local economy; (ii) ample capital as well as entry into the Chinese market; and (iii) damage from corporate social misbehavior. However, we suspect that these overseas impacts may be transitory as three dynamics, increased conflicts, accelerated learning and China’s domestic structural changes, are simultaneously set in motion.
Starting from a low base, China’s outward direct investment (ODI) has grown rapidly. In flow terms, it increased by 28-fold in ten years from $2.9 billion in 2003 to $84 billion in 2012. The new high record in 2012 made China the third largest ODI home country in the world, following the United States and Japan.
Since China is still a new outward investor, its impacts on host economies is unfolding and changing. In present literatures, theorists found both positive and negative impacts of ODI on host countries, which depend on a series of conditions such as the investment type, the source country, the target sector, and the host country’s characteristics and policy environment. In this paper, we explore some of these impacts of Chinese ODI based on a sufficient analysis of China’s policy environment and investment pattern.
On the policy front, the Chinese government has facilitated and encouraged overseas investment through substantial reforms. However, the approval system still significantly incurs high costs to investing enterprises.
As to China’s investment pattern, in light of the quality issues of the official data, we resort to two project-level datasets instead. The first dataset, referred as “LargeChinese ODI”, was constructed by collecting ODI projects approved by the NDRC between 2003 to 2011. Most of the projects are large in terms of investment value and made by well-known Chinese firms. The second dataset, referred as “SMEs Chinese ODI”, complements the first one as it covered all the registered ODI from Zhejiang Province between 2006 and 2008 and represented ODI of private sector enterprises. The average investment value is quite small compared with the first one.
Based on these two datasets, we find some basic facts of Chinese ODI: (1) State-owned enterprises are the major investors of Chinese ODI. (2) Mining and manufacturing were the two most popular final industries for large ODI and manufacturing was the dominant industry for SMEs ODI. (3)Large investors invested more of projects and investment fund in developed economies for abundant resources, service sector, technology, prestigious brand names and large domestic markets, and also invested in the ASEAN nations for low production costs and abundant resources; SME investors invested more projects in developed economies, but developing countries absorbed most of their fund.
These evidence supports that Chinese ODI is largely domestic-oriented, in that it intends to enhance domestic productivity and strengthen domestic production, which makes it different from the general two typical ODI styles, namely the market-seeking American style and the efficiency-seeking Japanese style. For Large ODI, technology-seeking is the major motivation, through which they are able to augment their existing assets and improve their competitiveness, followed by resource seeking, through which they secure the supply of resource and raw materials necessary for Chinese domestic production. The SMEs ODI is also primarily serving domestic production, while the channel is through facilitating Chinese exports to host economies.
Based on China's current ODI style, China's ODI can yield three main overseas impacts. First of all, it provides enormous job creations but limited technology transfers to the local economy. From 2007 to 2010, people employed in those firms increased from 684,300 to 1.103 million, with the share of foreign workers rose to 71.08% from 46.85%. In 2010, China ranked 8th in the world according to job creation overseas. Besides, China also contributed to local job creations in an indirect way through holding minority shares of local firms, jobs creation with Chinese ODI, helping foreign firms to survive and keep jobs. Given the current domestic-oriented Chinese-style ODI, however, technology transfers to host countries from Chinese investors can be expected to be quite limited. Even for less developed host economies such as African countries, technology transfers from Chinese ODI were limited partly due to skill mismatch and language barriers.
Secondly, it provides abundant capital as well as Chinese market entry. The country’s advantage in capital supply is closely related to the country’s financial repression, in particular, its low interest rate, and its enormously high savings ratio nation wide. Quite a few Chinese firms also have large internal funds to complete transactions when dealing with small economies. In addition, Chinese ODI also facilitates the entry of foreign enterprises, goods and services into China’s domestic market. Following the China’s technology-seeking and resource-seeking ODI, foreign resources, equipments and technologies are imported into China, and foreign enterprises are also able to enter some regulated industries or reduce investment risks in China with the help of their Chinese investors or partners. Moreover, host countries, especially capital-abundant advanced economies, are likely to require China to open its doors up to foreign capital in previously restricted areas as a reciprocal treatment.
Thirdly, it also generates some damages from corporate social misbehaviors. Host countries were also confronted with negative impacts from Chinese ODI. In particular, Chinese firms did not exhibit as impressive corporate social responsibilities as firms from other countries. Their misbehaviors were especially notable in three aspects: more frequent labor and wage issues and less well protected interests and benefits for their workers, lacking business ethics and integrity, and causing challenges and harms to the local environment.
However, these overseas impacts are undergoing rapid changes due to three dynamics. The first is increasing conflicts with host economies, in light of which, the Chinese government will take measures to ensure ODI enterprises not to damage the country’s reputation. The second is the fast learning of Chinese ODI investors who face a steep learning curve. They have the intelligence to learn as they go along and they have accumulated experiences and knowledge of foreign environment. The third is China’s domestic structural changes. As production costs increase and the industrial structure upgrades, the country will converge toward advanced countries and will gradually approach international frontiers of other social and business indicators, such as the legal system, the environmental protection, the corporate governance and business ethics.
Finally, to better use the Chinese ODI and sustain its recent upward trend, host economies must de-politicize some high-profile Chinese deals. And their public debates about the risks and benefits of the Chinese investment must not be based on fears or prejudices, but only on facts. Besides, host countries also need to continue improving their investment climate.
