Introduction
Since the initiation of economic reforms in 1979, China has become one of the world’s fastest-growing economies. From 1979 to 2004 China’s real GDP grew at an average rate of 9.3 %1 and many economists speculate that China could become the world’s largest economy at some point in the near future if the government continues and deepens its economic reforms. Moreover, trade continues to play a major role in China’s booming economy. In 2004, exports accounted for US$ 593 billion and imports for US$ 561 billion which makes China the third-largest trading economy worldwide.2 China’s trade boom is largely due to the inflow of foreign direct investment (FDI).
Most people know that China is a magnet for FDI and that it attracts more than any other country. In 2003 mainland China surpassed the United States as the largest FDI recipient. One year later the FDI inflow reached US$ 61 billion3 resulting in a cumulative level of FDI of US$ 563 billion4 at the end of 2004. Looking at these figures and at the “China fever” of managers from all over the world it is not very astonishing that for the last five years at least the big story has been about China’s FDI inflows. But there is another story as well. It is hardly mentioned in the press but it is becoming more and more important: the increase of Chinese FDI outflows.
For this reason the essay on hand shows, based on a general definition of FDI, the scope of China’s FDI outflows through current data and categorizes the different forms of FDI. Furthermore, the motives of Chinese companies investing abroad as well as the governmental actions supporting the going global movement are analysed. Then Chinese FDIs are examined in great detail at the example of Germany. Finally, problems of the development are discussed and the essay concludes with an outlook about China’s future FDI outflows.
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1 cf. Morrison, Wayne M. (2005): China’s Economic Conditions, http://www.fas.org/sgp/crs/row/IB98014.pdf, 24.10.2005.
2 cf. ibidem.
3 cf. UNCTAD (2005): World Investment Report 2005, http://unctad.org-wir05_fs_cn_en.pdf, 13.10.2005.
4 cf. Morrison, Wayne M. (2005), 24.10.2005.
Table of Contents
1. INTRODUCTION
2. DEFINITION: FOREIGN DIRECT INVESTMENT
3. SCOPE OF CHINESE FDIS
4. FORMS OF CHINESE FDIS
5. MOTIVES BEHIND CHINESE FDIS
6. GOVERNMENTAL ACTIONS
7. CHINESE FDIS IN GERMANY
8. PROBLEMS AND OBSTACLES
9. OUTLOOK
Objectives and Topics
This essay explores the growing phenomenon of Chinese foreign direct investment (FDI), analyzing the scope, motives, and governmental strategies that facilitate Chinese companies' expansion into global markets, with a particular focus on their activities in Germany.
- The historical evolution and current scope of Chinese FDI outflows.
- Categorization of various FDI forms used by Chinese enterprises.
- Strategic motives, including market access, technology acquisition, and resource security.
- The supportive role of Chinese governmental policies in the "Go-abroad" strategy.
- A detailed analysis of Chinese investment patterns and challenges within the German market.
Excerpt from the Book
4. Forms of Chinese FDIs
As Chinese FDIs are continuously rising each year it is interesting to have a closer look at the different forms the Chinese investors use within their going-abroad strategy. They can be classified in four different types so far.
The first category is the so-called Greenfield investment. This term indicates fully owned subsidiaries or joint ventures that Chinese investors built up with their own money or money provided by Chinese investors or creditors. Usually these investments are transacted within the electronic industry, light industry and textile industry. The company Haier that has established a fully owned subsidiary in the United States constitutes an example for this.
The second category of Chinese FDI is mergers and acquisitions. Mergers and acquisitions rely on different strategic motives. The main issues are the safeguarding of resources, the development of new markets and the stabilisation of order books and reduction of marketing costs. An example for the first is the Chinese oil company China National Offshore Oil Corp that realized mergers and acquisitions with 68 oil companies in 18 countries around the world. The automotive supplier Wanxiang Group bought his American subcontractor UAI which ordered brakes from Wanxiang for US$ 25 million every year. This is a good example for M&As with the aim of cost reduction and stabilisation of order books. Finally, the acquisition of foreign technologies is another motive for mergers and acquisitions. So the Chinese D’Long Group bought the aircraft manufacturer FairchildDornier after its bankruptcy in 2003.
Summary of Chapters
1. INTRODUCTION: Outlines the rapid economic growth of China and shifts the focus from FDI inflows to the increasing significance of Chinese FDI outflows.
2. DEFINITION: FOREIGN DIRECT INVESTMENT: Establishes a formal definition of FDI based on IMF standards, clarifying the distinction between direct and portfolio investments.
3. SCOPE OF CHINESE FDIS: Provides an overview of the global distribution of Chinese investments and the emergence of China as a major international investor.
4. FORMS OF CHINESE FDIS: Classifies the methods of expansion used by Chinese firms, including greenfield investments, mergers and acquisitions, R&D, and strategic partnerships.
5. MOTIVES BEHIND CHINESE FDIS: Examines the primary drivers for internationalization, such as market access, resource acquisition, and competitive necessity.
6. GOVERNMENTAL ACTIONS: Details the regulatory framework and state support systems, including the "Go-abroad" policy and various incentives.
7. CHINESE FDIS IN GERMANY: Analyzes the specific experiences, challenges, and outcomes of Chinese investments within the German business landscape.
8. PROBLEMS AND OBSTACLES: Discusses inherent structural weaknesses, lack of capital, and environmental risks hindering Chinese foreign investment.
9. OUTLOOK: Predicts the future trajectory of Chinese FDI, suggesting a continued rise as China transitions toward becoming a net investor.
Keywords
Chinese FDI, Outward Investment, Greenfield Investment, Mergers and Acquisitions, Global Expansion, Market Access, Resource Security, Technology Acquisition, China, Germany, Governmental Policy, Go-abroad Policy, Economic Reform, International Competitiveness, Foreign Assets.
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the rise of Chinese foreign direct investment, focusing on its scope, the different forms of implementation, and the underlying strategic motives driving Chinese companies to expand abroad.
Which thematic areas are covered?
The text covers the classification of FDI types, governmental support policies like the "Go-abroad" strategy, investment in natural resources, and the specific dynamics of Chinese enterprises operating in Germany.
What is the primary objective of this study?
The objective is to provide a comprehensive analysis of the transformation of China from a recipient of foreign investment to an active outward investor, evaluating the current state and future challenges of this development.
Which methodology is applied?
The study utilizes a descriptive and analytical approach, synthesizing current data, economic reports, and existing literature to categorize investment behaviors and policy impacts.
What topics are discussed in the main body?
The main body treats the definition of FDI, the geographical and industrial scope of Chinese investment, the specific motives behind these investments, and an in-depth look at case studies in Germany.
How would you characterize the work with relevant keywords?
The work is characterized by terms such as Chinese FDI, outward investment, governmental support, strategic acquisition, and international competitiveness.
How are Chinese investments in Germany currently described?
Chinese investments in Germany are described as small but growing, often targeting distressed companies for the purpose of know-how transfer, though the paper notes a shift toward more substantial business cooperation.
What are the main obstacles identified for Chinese outward investment?
The study identifies the lack of domestic capital, the high attractiveness of the home market as a competitive alternative, and a lack of international management experience as primary obstacles.
What does the author conclude regarding the future of Chinese FDI?
The author predicts that Chinese FDI will continue to rise, and that China is on a trajectory to shift from a major recipient country to a significant net investor in the global economy.
- Citation du texte
- Carolina Sohn (Auteur), Brigitte Stark (Auteur), Michel Heck (Auteur), 2005, Chinese Foreign Direct Investments - Scopes, Forms and Motives, Munich, GRIN Verlag, https://www.grin.com/document/51698
