• About
  • Archive
  • Contact
  • Home 1
  • Submit a Story
  • Submit a Story
  • USCBC Podcasts
China Business Review
  • Operations
    Managing Risk in the “New Era”

    Managing Risk in the “New Era”

    Design Patents vs. Trade Dress: Protecting IP in China

    Design Patents vs. Trade Dress: Protecting IP in China

    As China Emerges from COVID-19, US Companies Invest to Compete

    As China Emerges from COVID-19, US Companies Invest to Compete

    Inside the Mad Rush for Masks – Anatomy of a 10 Million Mask Order

    Inside the Mad Rush for Masks – Anatomy of a 10 Million Mask Order

    Addressing Risk in the Era of US-China “Great Power” Competition

    Addressing Risk in the Era of US-China “Great Power” Competition

    The Year in Social Credit: Where is Corporate Social Credit Going in 2020 and Beyond?

    The Year in Social Credit: Where is Corporate Social Credit Going in 2020 and Beyond?

  • Politics
    Hong Kong’s National Security Law, Five Months In

    Hong Kong’s National Security Law, Five Months In

    China Implements its Long-Awaited Unreliable Entities List Mechanism

    China Implements its Long-Awaited Unreliable Entities List Mechanism

    Competing WTO Reform Agendas and the Contest for the Next Director-General

    Competing WTO Reform Agendas and the Contest for the Next Director-General

    China Eyes Further Northeast Asian Economic Integration in RCEP

    China Eyes Further Northeast Asian Economic Integration in RCEP

    COVID-19 Could Doom or Deliver US-China Commercial Relations

    COVID-19 Could Doom or Deliver US-China Commercial Relations

    A Game of Chicken

    A Game of Chicken

  • Tech
    Export Controls on Emerging and Foundational Technologies: A Null Set?

    Export Controls on Emerging and Foundational Technologies: A Null Set?

    How Companies Are Reacting to China’s New Data Security Scheme

    How Companies Are Reacting to China’s New Data Security Scheme

    China’s Participation in International Standards Setting: Benefits and Concerns for US Industry

    China’s Participation in International Standards Setting: Benefits and Concerns for US Industry

    The Hidden Challenges of China’s Booming Medical AI Market

    The Brave New Business Models Making Waves in China’s Ecommerce Market

    Defining “Emerging Technologies”: Industry Weighs In on Potential New Export Controls

    Defining “Emerging Technologies”: Industry Weighs In on Potential New Export Controls

    Trending Tags

    • Intellectual Property
    • innovation
    • cybersecurity
    • ecommerce
    • tech
  • Society
    COVID-19 Could Doom or Deliver US-China Commercial Relations

    COVID-19 Could Doom or Deliver US-China Commercial Relations

    The Year in Social Credit: Where is Corporate Social Credit Going in 2020 and Beyond?

    The Year in Social Credit: Where is Corporate Social Credit Going in 2020 and Beyond?

    Open Government Developments in China: Implications for US Businesses

    The Hidden Challenges of China’s Booming Medical AI Market

    The Handshake that Changed the World

    President Carter and Vice Premier Deng at the Performance of American Arts

    January 29, 1979 Performance of American Arts for Deng Xiaoping

  • Media

    Gallery: Craig Allen’s Trip to China

    USCBC 45th Annual Membership Meeting

    USCBC 45th Anniversary DC Open House

    USCBC President’s China Visit

    USCBC Hosts Business Roundtable with Zhejiang Party Secretary Che Jun

    USCBC hosts Comprehensive Economic Dialogue (CED) Luncheon

  • Podcasts
No Result
View All Result
  • Operations
    Managing Risk in the “New Era”

    Managing Risk in the “New Era”

    Design Patents vs. Trade Dress: Protecting IP in China

    Design Patents vs. Trade Dress: Protecting IP in China

    As China Emerges from COVID-19, US Companies Invest to Compete

    As China Emerges from COVID-19, US Companies Invest to Compete

    Inside the Mad Rush for Masks – Anatomy of a 10 Million Mask Order

    Inside the Mad Rush for Masks – Anatomy of a 10 Million Mask Order

    Addressing Risk in the Era of US-China “Great Power” Competition

    Addressing Risk in the Era of US-China “Great Power” Competition

    The Year in Social Credit: Where is Corporate Social Credit Going in 2020 and Beyond?

    The Year in Social Credit: Where is Corporate Social Credit Going in 2020 and Beyond?

  • Politics
    Hong Kong’s National Security Law, Five Months In

    Hong Kong’s National Security Law, Five Months In

    China Implements its Long-Awaited Unreliable Entities List Mechanism

    China Implements its Long-Awaited Unreliable Entities List Mechanism

    Competing WTO Reform Agendas and the Contest for the Next Director-General

    Competing WTO Reform Agendas and the Contest for the Next Director-General

    China Eyes Further Northeast Asian Economic Integration in RCEP

    China Eyes Further Northeast Asian Economic Integration in RCEP

    COVID-19 Could Doom or Deliver US-China Commercial Relations

    COVID-19 Could Doom or Deliver US-China Commercial Relations

    A Game of Chicken

    A Game of Chicken

  • Tech
    Export Controls on Emerging and Foundational Technologies: A Null Set?

    Export Controls on Emerging and Foundational Technologies: A Null Set?

    How Companies Are Reacting to China’s New Data Security Scheme

    How Companies Are Reacting to China’s New Data Security Scheme

    China’s Participation in International Standards Setting: Benefits and Concerns for US Industry

    China’s Participation in International Standards Setting: Benefits and Concerns for US Industry

    The Hidden Challenges of China’s Booming Medical AI Market

    The Brave New Business Models Making Waves in China’s Ecommerce Market

    Defining “Emerging Technologies”: Industry Weighs In on Potential New Export Controls

    Defining “Emerging Technologies”: Industry Weighs In on Potential New Export Controls

    Trending Tags

    • Intellectual Property
    • innovation
    • cybersecurity
    • ecommerce
    • tech
  • Society
    COVID-19 Could Doom or Deliver US-China Commercial Relations

    COVID-19 Could Doom or Deliver US-China Commercial Relations

    The Year in Social Credit: Where is Corporate Social Credit Going in 2020 and Beyond?

    The Year in Social Credit: Where is Corporate Social Credit Going in 2020 and Beyond?

    Open Government Developments in China: Implications for US Businesses

    The Hidden Challenges of China’s Booming Medical AI Market

    The Handshake that Changed the World

    President Carter and Vice Premier Deng at the Performance of American Arts

    January 29, 1979 Performance of American Arts for Deng Xiaoping

  • Media

    Gallery: Craig Allen’s Trip to China

    USCBC 45th Annual Membership Meeting

    USCBC 45th Anniversary DC Open House

    USCBC President’s China Visit

    USCBC Hosts Business Roundtable with Zhejiang Party Secretary Che Jun

    USCBC hosts Comprehensive Economic Dialogue (CED) Luncheon

  • Podcasts
No Result
View All Result
China Business Review
No Result
View All Result
Home Uncategorized

China Invests Abroad

USCBC by USCBC
September 1, 2009
Share on FacebookShare on TwitterLinkedin

As China’s economy matures, its companies are looking for opportunities to expand around the world.

by Vanessa Rossi and Nora Burghart

Chinese outbound direct investment (ODI) has increased dramatically since the PRC government introduced the “go abroad” policy earlier this decade. Though China’s high savings rate and stock of foreign exchange reserves suggest that the country has the potential for substantial investment outflows, ODI was initially slow to develop, rising into the $10-$20 billion range only after 2004. Thanks to the recent acceleration, however, outbound flows have risen at a compound average growth rate of roughly 60 percent from 2000 to 2007, and expanded at a similar rate in 2008, according to the PRC Ministry of Commerce (MOFCOM). Although Chinese ODI dropped early this year, outflows picked up in the second quarter; total ODI for 2009 may not be much different from last year’s $52.2 billion. Mainland China now ranks third among developing countries (after Brazil and Russia) for ODI flows and fifth overall (after Russia, the British Virgin Islands, Singapore, and Taiwan) in terms of ODI stock. More relaxed rules and PRC government support for enterprises that want to enter overseas markets have made China one of the most active investors of the emerging world. Still, China’s investment remains dwarfed by global ODI, to which China contributes only about 1 percent, according to the Organization for Economic Cooperation and Development.

In 2007, the most recent year for which detailed Chinese ODI figures are available, China’s ODI stock totaled nearly $118 billion while ODI flows exceeded $26 billion, according to MOFCOM. This is a massive increase compared with historic levels. For example, from 1982 to 1989, annual ODI flows were less than $500 million, and between 1990 and 1999, this amount rose to just above $2 billion. But in 2005, the year of the first big surge, ODI flows jumped to $12.3 billion, and they continued to surge up to the outbreak of the global crisis at the end of 2008. A decade ago, outflows were dwarfed by annual foreign direct investment (FDI) inflows of $30-$50 billion. In recent years, outflows have risen from about 5 percent of inbound FDI to equal roughly one-third of inflows.

Where is Chinese investment going?

China’s investments are spread unevenly around the world, with Asia, and especially Hong Kong, receiving the largest share. But much of the investment that goes to Hong Kong is “round-tripping,” a strategy by which a mainland Chinese investor sends funds through a foreign company that are then reinvested back into China as foreign capital, enabling the investor to take advantage of special tax incentives for foreign investment. Tax havens such as the Cayman Islands and British Virgin Islands also disguise where Chinese investments actually go. Though these features of China’s flows may inflate its total ODI numbers and distort regional comparisons of flows, the ODI figures for Europe and the United States are considered a fairer reflection of the actual flows because much of the measurement problem pertains to ODI flows with Hong Kong and other parts of Asia. Even excluding ODI flows into Hong Kong and other tax havens, however, Chinese investment is still mainly concentrated in Asia. Investment in North America and Europe remain extremely low as a share of total Chinese ODI, especially considering that these are China’s main export destinations.

The hunt for resources

Some observers suggest that the geographical distribution of Chinese ODI has been the result of China’s historic preference for investing in regions that offer access to natural resources, satisfying a strategic need for resource security. Chinese companies that invest in resource extraction abroad often target other developing countries, especially in Africa and Asia. At times, large state-owned enterprises have also targeted developed economies, such as the United States and Australia, through resource-related investments. For example, in 2005, China National Offshore Oil Corp. bid against Chevron Corp. to acquire Unocal Corp., and Aluminum Corp. of China Ltd. recently sought to buy a stake in Rio Tinto Ltd. Both of these deals failed, however, because of political and shareholder pressure in the recipient countries.

A shift to services

According to the resources theory, much of China’s ODI to date has been aimed at sourcing inputs for Chinese industry rather than developing sales or establishing businesses embedded in end-consumer countries. This view to some extent helps explain the low levels of interest in the European Union and United States. But this pattern may be changing, as some Chinese investments overseas have recently shown signs of moving into sectors other than resource extraction (see China’s Investment in Europe: A Shift to Services). Since 2004, services have become the dominant sector for Chinese investments abroad, and in 2006, China began investing heavily in the financial sector, which was the third most important destination for Chinese ODI flow that year and the sixth most important destination in 2007. But to some extent, such developments reflect less movement away from resources than rapid growth in China’s overall ODI. Companies appear to be placing much greater emphasis on commercial incentives and business growth, leading to a shift in recipient countries and regions.

[box]

China’s Outbound Investment Rules

The PRC government has sought to encourage and regulate the rapid growth of China’s outbound direct investment (ODI) in recent years by advancing a long-term “go abroad” policy. In July 2004, the PRC Ministry of Commerce (MOFCOM) published China’s first Guiding Catalogue of Countries and Industries for Overseas Investment, which listed 67 industries— mostly types of manufacturing—in which Chinese companies would receive preferential treatment when they invested abroad. Revised catalogues released in 2005 and 2007 expanded incentives for resource extraction and investment in Asia and North Africa. In April 2009, MOFCOM introduced a new online resource for Chinese companies investing abroad. The investment guide, which will be updated regularly and includes information on more than 160 countries, provides advice on setting up enterprises overseas, advice on potential problems that Chinese companies may encounter abroad, and answers to frequently asked questions. Central-level PRC agencies have also revised several measures related to Chinese ODI, bringing significant change to outbound investment procedures.

MOFCOM revises the investment approval process

MOFCOM’s Measures for the Administration of Outbound Investment, which took effect May 1, 2009, give the agency greater control over high-level and sensitive ODI. MOFCOM must approve outbound investments of $100 million or more; provincial-level commerce departments will approve most investments between $10 million and $100 million. (Previously, all central-level enterprises had to file investment applications with MOFCOM, while local-level enterprises could obtain provincial approval.) In addition, all investments involving multiple countries, certain yet-to-be-determined countries or regions, and countries that do not have diplomatic relations with China require MOFCOM review. MOFCOM retains jurisdiction over investments that involve incorporation of offshore special purpose vehicles. The rules also establish a more localized and efficient application process for low-value ODI.

NDRC adopts new rules for overseas acquisitions

New National Development and Reform Commission (NDRC) rules require Chinese enterprises to submit a preliminary report on intended mergers and acquisitions overseas before any legally binding contracts are signed. The report must provide details on the investor, investment project, and intended timeline. The preliminary review process is in addition to the requirements of the 2004 Administrative Measures on Approval of Investment in Overseas Projects, under which enterprises must secure NDRC approval for outbound investments that exceed $10 million.

SAFE relaxes forex restrictions

Qualified domestic enterprises may provide loans to their overseas subsidiaries, according to State Administration of Foreign Exchange (SAFE) rules that took effect August 1. Under the new measures, companies operating in China that meet certain requirements, such as maintaining sound business records and complying with foreign-exchange rules during the past three years, can provide loans to a wholly or partially owned offshore subsidiary. The loan can be issued in the form of local or foreign currency, cannot exceed 30 percent of the domestic company’s equity share, and must be approved by the local SAFE branch. The PRC government previously allowed only multinational corporations to lend to their offshore subsidiaries, but it has expanded the rules to make it easier for Chinese companies to finance overseas investments.

SAFE has also eased restrictions that allow small and medium-sized domestic enterprises to expand overseas. According to the Administrative Regulations on Direct Outbound Investment by Domestic Entities, which also took effect August 1, Chinese companies only have to declare the source of their funds and register their remittance with SAFE rather than apply for prior approval. In addition, companies can now use their own foreign exchange or borrow foreign exchange from Chinese banks to fund overseas investments.

—Julia Zhao
[/box]

[author]Vanessa Rossi is senior research fellow, and Nora Burghart was research assistant for September 2008-July 2009, at the International Economics Program, Chatham House.[/author]

Tags: Chinese InvestmentOutbound Investment
USCBC

USCBC

Next Post

China's Rising Interest in Latin America

Recommended.

How Biden’s Economic Team Views China Trade Policy

January 14, 2021

Hong Kong’s National Security Law, Five Months In

November 25, 2020

China Implements its Long-Awaited Unreliable Entities List Mechanism

October 7, 2020

Competing WTO Reform Agendas and the Contest for the Next Director-General

September 22, 2020

Latest Podcasts.

A look at China’s recent spate of bond defaults

January 22, 2021

A COVID update, a record trade surplus, and new PRCG personnel

January 19, 2021

New MOFCOM rules on extraterritorial application of foreign laws

January 12, 2021

The EU-China agreement and a look at other market liberalizations

January 6, 2021
China Business Review

China Business Review is the official magazine of the US-China Business Council, a nonprofit and nonpartisan trade association that represents more than 200 American companies doing business in China.

  • How to contribute to China Business Review

Categories

  • Bilateral Relations
  • Business Etiquette
  • CBR Spotlight
  • China Deals
  • Corruption
  • Cybersecurity
  • Ecommerce
  • Environment
  • Finance
  • Galleries
  • Getting Started
  • HR & Staffing
  • Infographics
  • Innovation
  • Intellectual Property
  • Management
  • Media
  • Operations
  • Opinion
  • Policy & Regulations
  • Politics
  • PR & Marketing
  • Rural Issues
  • Safety
  • Social Policy
  • Society
  • Standards + Licensing
  • Sustainability
  • Tax
  • Tech
  • Top Story
  • Trade
  • Uncategorized
  • US-China Business Council
  • Videos

Tags

Agreements Agriculture Alibaba Best Practices Business Environment China China's Investments Abroad China Market Intelligence Chinese Consumers Chinese Investment Commentary Consumer Trends E-Commerce Economic Trends Energy Environment Events Food Foreign Investment Going Global Healthcare Reform Human Resources Infrastructure Internet Interview Investment Investments into China IPO Joint Venture Labor Legal Analysis M&A Manufacturing Media National People's Congress Q&A Strategic and Economic Dialogue Supply Chains Technology Trade Transparency US-China Relations USCBC US Exports to China Xi Jinping

Join our Mailing List

Sign up for the US-China Business Council's newsletters to stay ahead of the game with roundups, analysis, and commentary.

Sign Up

Follow Us

  • About
  • Archive
  • Contact
  • Home 1
  • Submit a Story
  • Submit a Story
  • USCBC Podcasts

© 2020 China Business Review

No Result
View All Result
  • Operations
  • Politics
  • Tech
  • Society
  • Media
  • Podcasts

© 2020 China Business Review