Chinese Investors Are Learning and Expanding Globally

China’s Foreign Direct Investment outflows started to surpass the inflows in 2016. According to the World Development Indicator (2017), China’s foreign direct investment net outflows reached $217.20 billion while net inflows was $170.56 billion. It was the first year that China’s outflows was greater than the inflows. Chinese investors are globally seeking for mergers and acquisition in the foreign countries in order to access to natural resources for their production input, acquiring technology and being closer to the market.

Inwards and Outward

Source: World Development Indicator (2017)

The main destinations of the Chinese investors are countries in Asia, especially Hong Kong and Singapore. According to China’s National Bureau of Statistics (2016), countries in Asia shared 74.4% of the destinations of Chinese investors. Latin America is the second largest destination (8.66%), followed by North America (7.36%), and Europe (4.89%).

FDI destination

Source: National Bureau of Statistics of China (2016)

There are three main reasons that the business will decide to invest in the foreign countries: 1) To be closer to the market or avoid the import tariffs (so-called “Tariff jumping”), 2) To own or access to the natural resources, or 3) To get cheaper input (skilled labor or unskilled labor). Even though North America shared only 7.36% of the destination, the value of investment has been increasing dramatically. In the United States, the value of foreign direct investment from China used t be only $119.93 million in 2004. It had strikingly risen to 8,028.670 million in 2015 (see the following graph).

China US FDI.jpg

Source: National Bureau of Statistics of China (2003-2016)

If the government of the United State insists to use the protectionist policies toward Chinese imports by tariffs, Chinese investors are able to use foreign direct investment for “tariff jumping” and set up their factories here, similar to the situation of Japanese automotive companies in 1980s.  It seems like Chinese investors have learned from the history and prepared themselves very well in the dynamic of globalization. Although they are new in term of multi-national business compared to the investors from the advanced economies, it seems only a matter of time before they step up to be among the leaders.

 

 

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