Global Players from Emerging Markets: Strengthening ... - Unctad

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50 Outward Foreign Direct Investment by Enterprises from China of recipient territories, especially in poorer African, Asian and Latin American countries, also suggests other motives, especially securing political ties and relationships. Industrial distribution. Chinese OFDI concentrated in the “information technology, computer and software” (ITCS), “wholesaling and retailing” and “mining and resources” industries (figure 1). 26 The latter two sectors relate to market-entry and resourcesecuring actions. The scale of ITCS reflects the 26 Banking and most financial services are not captured by MOFCOM data. Source: China, Ministry of Commerce. primacy or relative competitiveness of this manufacturing cluster of companies and industries in China’s economy. The motives underlying the expansion of companies in these industries relate to a complex amalgam of market, efficiency and resource-seeking reasons. Various service sectors are increasingly important in Chinese OFDI (figure 2). For instance, leasing, commercial services, communication and other services accounted for 15 per cent of total OFDI in 2003. The share of “wholesaling and retailing” and manufacturing OFDI flows in 2003 was far lower than in stock, while “mining and resources” share was a striking 48 per cent. Allowing for the fact that China’s OFDI Figure 1. Chinese OFDI stock, by sector and industry, 2003 Other industries 3% Agriculture 1% Mining & Resources 19% Other manufacturing 6% Figure 2. Chinese OFDI flows, by sector and industry, 2003 Mining & Resources 48% Source: China, Ministry of Commerce. Other Services 7% Agriculture 3% Leasing & Commercial Services 6% IT, Computer & Software Industries 34% Wholesale & Retailing 21% Transportation & Communication 3% Leasing & Commercial Services 10% Wholesale & Retailing 13% Transportation & Communication 3% Other Services 2% Manufacturing 21%
Figure 3. Top 20 Chinese Overseas Investors, by FDI stock, 2003 Foreign Owned Enterprises 5% State Owned Enterprises 43% Other 1% Collectively Owned Enterprises 2% Source: China, Ministry of Commerce. is at an early stage, and that too much should not be made of short-term trends, these figures suggest that securing raw materials and other resources is a very major part of the FDI effort by its enterprises. Types of enterprises. Between 1979 and 1985, Chinese OFDI approvals were tightly controlled and largely undertaken by state-owned enterprises (SOEs), including provincial and municipal corporations. Trade relations and expanding China’s influence were the guiding principles behind this early investment. After 1985, non-state-owned firms were allowed to apply for approval to invest overseas, especially for manufacturing and to access foreign markets. Between 1992 and 1998 there was a rapid increase in OFDI by SOEs, including provincial and municipal corporations, both in and via Hong Kong (China). This led to a tightening-up of approval procedures in order to better manage the process. Since 1998, however, the authorities have actively encouraged OFDI, both to secure key resources (including raw materials and technology) and establish “global” Chinese TNCs as part of a strategy of creating national champions in the face of formidable competition from existing non- Chinese TNCs, within and without China. Though this latest phase is relatively new – and all OFDI is subject to government approval – some commentators regard the post 1998 period as an “acceleration stage” in Chinese OFDI. 27 The data suggest some merit to this view (box 1). 28 27 John Child and Suzana B. Rodrigues 2005, “The Internationalization of Chinese Firms: A Case for Theoretical Extension?”, Management and Organization Review, Vol. 1, No 3; and Douglas H. Brooks and Hafiz Mirza (2005), “Outward FDI from Developing Asia”, paper presented at the Asian Development Bank seminar, “Outward Foreign Direct Investment from Asian Developing Countries”, Bangkok, 28-29 November. 28 For further discussion, including various nuances of Government policy towards OFDI, see John Wong and Sarah Chan (2003), “China’s Outward Direct Investment: Expanding Worldwide”, China: An International Journal, Vol 1, No 2; Dexin Yang (2003), Foreign Direct Investment from Developing Countries: A Hong Kong (China) & Macau(China) Private Companies 2% 10% Holding Companies 4% Limited Holding Companies 11% Limited Companies 22% CHAPTER V 51 Characteristics of China’s Transnational Enterprises. Some 43 per cent of all Chinese outward foreign investors in 2003 were state-owned enterprises and, leaving aside “Hong Kong (China) and Macau (China)” and “Foreign Owned Enterprises” 29 , the remaining investors are a mixed bag of private, limited, holding and collectively owned companies (figure 3). Most are large companies, working closely with the state and, therefore, likely to pursue OFDI in accordance with at least some of the priorities of the Government. As mentioned earlier, smaller, private companies are unlikely to be captured by either MOFCOM or SAFE data. Looking at specific companies, tables 3 to 5 provide insight on the nature of the largest Chinese TNCs. Although there is a slight variation in terms of which TNCs appear in these tables (since these relate to the ranking of companies in FDI stock, revenues and assets overseas), the vast majority are state-owned enterprises. In consequence, the largest sectors or industries represented by these large TNCs are resource/raw materials orientated companies (e.g. China Petroleum & Natural Gas, China Ocean Petroleum, China Resources and China MinMetal Corporation; it is likely that some of the holding companies are parents to similar companies), transport and communication to handle imports and exports (e.g. China Airline, China Shipping and China Foreign Trade Shipping Corporation), Heavy Industry (e.g. China Construction Engineering Corporation and China Bao Steel) and the Information Technology and Electrical/Electronic industry (e.g. China Mobile, China Telecom and China Electric). It is only in this last sector that a few private companies (e.g. Huawei Case Study of China’s Outward Investment, Centre for Strategic Economic Studies, University of Melbourne, unpublished thesis; UNCTAD (2004), “China: An Emerging FDI Outward Investor”, e-brief, United Nations, New York and Geneva. 29 Presumably establishing grandchildren subsidiaries in third countries.
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