China’s investment abroad

Abstract

In the past half decade Chinese foreign direct investment has become a major element of global capital flows. Chinese investment abroad represents a new dimension of China’s integration into global economic and political systems. The upward trend is clear. As China relaxes restrictions on outbound capital flows, an increasing share of the country’s foreign asset holdings will likely shift from official holdings of foreign exchange reserves to direct investment abroad by Chinese companies. The Chinese government’s encouragement for companies to ‘go global’ has seen Chinese state-owned enterprises (SOEs) secure a growing share of the international investment market, with particular interest in resource investment during the current global commodities boom or in technology acquisitions. With huge foreign reserves and access to low-cost funding, Chinese firms have begun to make a big wave. But Chinese corporations have faced a number of problems in going global, including resistance in host countries, especially in the developed world; claims of neo-colonial motives in the developing world; and colourful reporting of their operations by foreign media. Chinese investors face a steep learning curve. Host countries, too, are still working out how to judge their interests correctly in capturing the benefits from Chinese direct investment abroad—a major new source of investment when capital from developed economies is drying up. Business abroad involves more than merely economic interaction between foreign enterprises and the state: it entails significant political interaction as well. This is particularly the case with China, as many of its overseas investors are SOEs. There is growing debate globally about whether and how the role of SOEs affects the benefits that host countries gain from Chinese investment abroad—a debate that is really about the interaction between national political institutions that are ordered around different principles and political constitutions, and how these institutions evolve in settings governed by market disciplines. This issue of EAFQ assembles perspectives from top analysts to review the issue. It provides a start in serious and objective analysis of how we should properly look at the growth and reception of Chinese direct investment on the international stage.