中国海外直接投资的前景

Perspectives on China's Outward Foreign Direct Investment

Randall Morck

University of Alberta School of Business and NBER

* The authors are grateful for the helpful comments from William Allen, Tom Pugel, Alan Rugman, Huang Jun, Myles Shaver, Jordan Siegel, Changqi Wu and two anonymous reviewers.

Abstract

Recent economic data reveal that, at the infant stage, China’s outward foreign direct investment (FDI) is biased towards tax havens and Southeast Asian countries and are mostly conducted by State controlled enterprises with government sanctioned monopoly status. Further examination of China’s savings rate, corporate ownership structures, and bank dominated capital allocation suggests that, although a surge in China’s outward FDI might be economically sensible, the most active players have incentives to conduct excessive outward FDI while capital constraints limit players that most likely have value-creating FDI opportunities. We then discuss plausible firm-level justifications for China’s outward FDI, its importance, and promising avenues for further research. 

I. Introduction 

Barely thirty years ago, most would consider China a poor agricultural economy. In 2008 China is hosting the Olympics to signal its emergence as a major economic power. This phenomenal development appropriately draws international business scholars’ attention. One especially curious characteristic of China’s development path is a recent surge in its outward foreign direct investment (FDI). Successful and not-so-successful foreign acquisitions by companies like Haier, Lenovo, TCL and CNOOC (China National Offshore Oil Corporation) grab headlines. 

Much discussion is of the phenomenon itself. With over a trillion dollars in foreign reserves and increasing economic clout, China can send flagship companies abroad to acquire technologies, brands, resources, and better access to international markets. In some industries at least, rising capacity and intensifying domestic price competition are cutting profit margins, and Chinese managers see FDI as a way to upgrade technology and augment earnings. While these are all legitimate strategies under broad ranges of circumstances, we believe it is important to identify specific drivers of the current surge in Chinese outward FDI, and to evaluate its broader implications with economic theories. 

In the following, we first sketch the empirical characteristics of China’s outward FDI: its size, target locations, and most important players. Then, we offer alternative perspectives on the subject matter. At the economy level, China’s high savings rate, the behavior of its dominant state-controlled banks, and the enduring voice of the state in corporate governance might distort capital allocation in ways that generate outward FDI in certain sectors. Plausible distortions arise from both the identity and likely motives of the key players. Next, we explain why China’s outward FDI will probably grow substantially as different players gain prominence. Given this, we adopt a firm-level perspective, and consider three non-exclusive theoretical explanations of China’s outward FDI surge. Implications for corporate management and public policy are discussed in the conclusion. 

II. A Brief Description

This section draws on various data sources to characterize China’s outward FDI – its size, target locations, and players. 

China’s outward FDI is tiny

Figure 1 tracks the surge in outward FDI from China. Starting from near zero in the seventies and early eighties, Chinese outward FDI exceeds $16 billion in 2006. 

Despite this impressive growth rate, the absolute magnitude remains small. The IMF places China’s 2005 purchasing power parity (PPP) adjusted GDP at $8.8 trillion, a bit over 70% of U.S. GDP ($12.2 trillion). However, Table 1 shows China’s outward FDI that year to be only $12.3 billion – a mere 5% of the comparable U.S. figure – barely outpacing Singapore and falling well behind the Netherlands. Moreover, China’s outward FDI stock accounts for only 0.6% of the world total at the end of 2005 – a disproportionately small sum even among countries at similar stages of development, including Russia, another recent command economy in transition.[1] China’s rapid growth in recent years might have attracted investment resources to stay home instead of seeking opportunities overseas. Clearly, then, China’s outward FDI has substantial scope to grow in the long run and it is beginning to show a catching up tendency. 

Table 1. Comparison of Outward FDI across Countries

Data source: World Investment Report (2004) and World Investment Report (2005) of UNCTAD, and China Ministry of Commerce

Target locations 

High-profile Chinese outward FDI includes Lenovo’s acquisition of IBM’s personal computer unit and Minmetals’ bid for Noranda in Canada. That these acquisition targets are located in the world’s most developed countries attracts much public attention, generating an illusion that China already contains world-class companies joining the ranks of the multinational giants based in developed countries. In reality, Chinese outward FDI targets firms in all continents, with Figure 2 showing a distinct focus on South and East Asia and, to a lesser extent, Africa. In 2006, the 76 newly planned outward FDI projects in these two regions account for over 60% of the 125 total reported. In contrast, only about a third is in developed countries. 

Data Source: FIAS/MIGA Firm Survey, World Bank

Figure 2. Number of Planned FDI Projects by Destination (2006)

The stock of China’s outward FDI is even more geographically concentrated. According to the annual statistics from the Ministry of Commerce, as of the end of 2005, Asia, Latin America and Africa account for 71%, 20% and 3% of the FDI stock, respectively, and the shares for North American and Europe are each below 3%. 

Table 2 separates China’s outward FDI volume by host country/area. The top destinations are Hong Kong and Caribbean tax havens, which consistently account for about 70% of the flow. These countries provide confidentiality to foreign investors, and so are commonly used by multinational firms to store wealth beyond the purview of tax authorities (Harris et al, 1993). FDI into these locations by Chinese firms might also be designed to hide wealth from tax authorities, other authorities, or even public shareholders. Mainland companies may also invest in these countries, particularly in Hong Kong, because these locations give them convenient access to trade and financing opportunities.[2] 

Moreover, Chinese subsidiaries in these countries might serve as holding companies for investments elsewhere; or even back into China. For example, a Chinese firm’s FDI into Hong Kong can rebound to China if its Hong Kong subsidiary acquires “foreign owned enterprise” (FOE) status in the mainland. FOEs pay lower taxes than domestic firms through the end of 2006. Unfortunately, we are not able to trace the funds pouring from China into tax havens to their final destinations.[3] Yet another possibility is that Chinese controlled subsidiaries in these countries veil spontaneous privatization, analogous to that documented by Lipton and Sachs (1990) in Eastern Europe. That is, the insiders of some Chinese firms might be moving wealth into tax havens to place it under their personal control. These numbers cast doubt on the extent to which economic fundamentals genuinely drive China’s outward FDI. 

Table 2: Top Destinations of China’s Outward FDI Flows

Data source: China FDI Statistics Report, Ministry of Commerce and China Statistics Bureau

The players

Table 3 ranks the thirty largest companies in China by their outward FDI in 2004 and 2005. Almost all are either listed or controlling major listed subsidiaries. Two observations follow. First, the biggest sources of Chinese outward FDI are highly profitable listed SOEs. Lenovo is the only FDI heavyweight not explicitly state controlled. Private-sector firms may well conduct some outward FDI; but the scale is too small to register. Second, virtually every one of these significant players has an officially-sanctioned monopoly in some major industry, such as natural resources or telecommunications. In 2005, the top ten SOEs account for over 75% of the total profit of China’s 169 national SOEs[4], and 32% of the profit earned by the entire industrial sector (Table 4). Eight of the top ten qualify for inclusion in Table 3. Namely, the largest FDI players overlap substantially with the most profitable SOEs in China.

Table 3: 30 Largest Companies Ranked by Outward FDI

Data source: China FDI Statistics Report, Ministry of Commerce and China Statistics Bureau