China: From seeking FDI to becoming top overseas foreign direct investor
China not only largely contained the COVID-19 pandemic and resumed near normal economic activity but also became the only major economy in the world to achieve positive growth last year. Accompanying this success story were two more pieces of good news: that China had become the top destination for foreign direct investment (FDI) and source of outward foreign direct investment (OFDI) in the world.
That China became the top destination for FDI was not a surprise. After all, since the launch of reform and opening-up more than four decades ago, China has been trying to attract as much FDI as possible, and FDI has played a crucial role in its economic development. In fact, for many years, China has been among the top FDI destinations.
But the second piece of good news surprised many. It may take us some time to understand why, especially because the central and local governments have made attracting FDI as one of their top priorities.
Yet China has become the largest overseas investor. Recent reports from both the Ministry of Commerce and UN organizations show that China’s OFDI last year was over $133 billion, more than four-fifths of its FDI of $163 billion.
After the founding of the People’s Republic in 1949, for 30 years, China spent billions of yuan in other countries. The amount, however, was given to friendly countries as grants and donations. But between 1980 and 2000, China focused on attracting FDI to boost its economy, and investing abroad was something alien to the Chinese people.
China’s “Go Global” strategy was launched only at the turn of the century when some Chinese enterprises began investing abroad. In 2002, when the National Bureau of Statistics began measuring the OFDI, the net amount was an insignificant $2.7 billion.
Different from attracting FDI to China－small companies first took the initiative followed by the big ones including those among the world’s top 500 companies－large State-owned companies were encouraged to test the waters before going global. Such enterprises, it was assumed, were better prepared, given their economic and human resources capacity, to bear the risks.
Risks did emerge now and then. There have been cases of oil fields and refineries worth billions of dollars being abandoned because of foreign invasions and wars, mining contracts being torn up for political reasons, and multi-billion dollar projects being stopped because of Western sanctions.
Despite all the risks and frustrations, Chinese companies gained in experience and kept raising their investments abroad. Now, among China’s top 100 companies, there is hardly any which doesn’t have branches or subsidiary companies in other countries.
Encouraged by the success of large companies, in recent years, small and medium-sized private enterprises have been rapidly making inroads into foreign markets, mostly in manufacturing, infrastructure building, trade and services. Statistics show that by the end of 2019, there were 44,000 Chinese companies with investments in 188 countries and regions. More important, the source of more than half of China’s OFDI is non-State-owned enterprises.
Thanks to their decades of operations overseas, Chinese companies have left deep imprints in many countries, especially in developing countries. Anyone traveling across these countries can easily see railways, highways and bridges built by Chinese companies, shops selling made-in-China smartphones and other electronic devices, as well as Chinese-made cars and trucks driving past on roads.
Countries welcome Chinese investment, because it has helped boost their economic development and improve their people’s lives and livelihoods. Indeed, there have been some differences between the Chinese companies and their partners in other countries, but that can happen in any business venture in any country.
It is therefore ridiculous to accuse China of setting a “debt trap” for partner countries, as some Western politicians and media outlets have claimed. To protect the interests of the Chinese companies doing business abroad, the National People’s Congress recently promised to upgrade China’s legal tool kit to overcome the risks in case some foreign countries impose sanctions on Chinese entities, or try to interfere in China’s internal affairs.
We therefore hope more Chinese enterprises, both private and public, and large and small, will invest in foreign markets to help boost the global economy.
Source: China Daily