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

64 Outward Foreign Direct Investment by Enterprises from China
In addition, since 1 October 2002, China has
launched pilot programmes in a few provinces with the
purpose of reforming the foreign exchange control of
OFDI. These provinces include: Zhejiang, Shanghai,
Jiangsu, Guangdong, Shandong, Fujian, Beijing,
Tianjin, Heilongjiang, Sichuan and Chongqing. In
these provinces, a series of policies and measures
have been adopted, which are as follows: the total
quota of the purchase of foreign exchange within
the pilot period of one year is up to $1.75 billion;
qualified domestic enterprises are granted the right to
choose the source of foreign exchange from its own
foreign exchange reserve, domestic loans on foreign
exchange or purchasing foreign exchange in market.
Domestic enterprises are no longer required to remit
profit back according to their financial situation;
domestic enterprises no longer need to be approved
before they use profit or other returns to increase their
capital of investment or reinvestment.
Promotion policies
Countries all over the world provide preferential
policies to direct investment in foreign countries. To
encourage domestic enterprises to invest overseas,
the Chinese Government has some limited promotion
policies in respect of finance and taxation.
Finance
(1) Banks will provide mid and long-term RMB
loans to all qualified domestic enterprises for OFDI. (2)
Banks will provide export credit to finance the export
of equipment, accessories and raw materials being
promoted by overseas processing trade. (3) Domestic
enterprises aiming at overseas processing trade can
apply for trade development funds and the Export-
Import Bank of China evaluates the projects, provides
with loans and retrieves loans. (4) Domestic enterprises
aiming at overseas processing trade can apply for
preferential loans under aid programmes and aid project
funds if the host country is an aid-receiving country.
Taxation
(1) Domestic enterprises are allowed to retain all
the foreign exchange they earn within five years since
their establishment with a purpose of assuring enough
capital to expand production. After five years, they
should pay income tax and submit 20 per cent of their
foreign exchange quota as required. (2) If products from
resources-exploiting projects sold back to China are
included in the importing plan of the Government, these
products will be treated the same tariff as that of the
import from other countries. (3) Fish products caught
by the Chinese side in offshore fishing are exempted
from import tariffs in the long term. (4) The exported
equipment, raw materials and semi-product, led by the
Chinese side investment, are exempted from export
tariffs.
F. Conclusion
Chinese TNCs have emerged in significant
numbers in recent years, especially since the early
1990s, and this has been paralleled by sizeable levels
of OFDI, widely dispersed across the globe. Initially
industrialized countries were the main focus of
Chinese OFDI (because of specific drivers, such as
the need for raw materials and technological assets),
but increasingly developing countries are receiving
sizeable investments. Since about 1998 OFDI has
been actively encouraged by the Chinese authorities,
with two broad, overlapping aims: to secure resources
(e.g. raw materials, technology, and brands) and
establish national champions, though these policies
are not yet fully coherently or consistently applied.
Most Chinese TNCs are SOEs, e.g. PetroChina,
Sinopec and CNOOC; but private companies such
as Huawei, Haier and Lenovo are increasingly to the
fore and will most likely become the more important
and common players in the mid to long run.
The authorities’ two aims mirror corporate
drivers and motives, which in essence are: seek new
markets, secure natural resources and access/acquire
advanced technology, brands and other assets. These
aims and motives are a mix of the “normal” and the
“unusual”. The first aspect, that is Chinese OFDI
to secure raw materials and markets (e.g. through
greenfield and acquired subsidiaries), is normal in
the sense that other countries have manifested similar
characteristics in their early OFDI. For example, raw
materials-orientated FDI was common in the case of
Japan and the Republic of Korea at a similar stage in
their OFDI development because, as with China, both
countries are characterized by raw materials scarcity
(relative to their needs). Similarly, TNCS from
these countries – along with many others – invested
considerable amounts in sales subsidiaries (greenfield
and acquired) in industrialized countries at an early
stage in their development because this is where
the markets (mostly) are. For these earlier TNCs,
it was only later that motives and drivers such as
acquisition/development of brands, technology from
advanced countries or utilization of cheap labour in
developing countries for production became more
common. China is unusual in that these latter drivers
are very significant in the country’s OFDI “lifecycle”;
and the chief reason for this appears to be that
by allowing TNCs large-scale entry to its economy
at such an early stage in its development (this is in
marked contrast to Japan, the Republic of Korea,
Taiwan Province of China, Russia, India – and even
Brazil and Mexico) it has forced its companies to face