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Chapter 13 The above photograph shows the modern model of Zheng He’s ship compared to one of Columbus's ships.

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Presentation on theme: "Chapter 13 The above photograph shows the modern model of Zheng He’s ship compared to one of Columbus's ships."— Presentation transcript:

1 Chapter 13 The above photograph shows the modern model of Zheng He’s ship compared to one of Columbus's ships.

2 13. Inward and Outward Direct Investments 13.1 Some basic concepts 13.2 Inflow of foreign direct investment 13.3 Outward direct investment

3 Keywords: foreign direct investment (FDI), outward direct investment (ODI), foreign invested enterprise (FIE), “going out” strategy, equity joint venture (EJV), cooperative joint venture (CJV), wholly foreign-owned enterprise (WFOE), merger and acquisition (M&A)

4 13.1 Some basic concepts Equity joint venture Cooperative joint venture Wholly foreign owned enterprise

5 CategoryTotal investment (TI) Minimum registered capital 1Up to $3 millionAt least 70% of the TI 2 From $3 million to $4.2 million At least $2.1 million 3$4.2 million to $10 millionAt least 50% of the TI 4$10 million to $12.5 millionAt least $5 million 5$12.5 million to $30 millionAt least 40% of the TI 6$30 million to $36 millionAt least $12 million 7More than $36 million At least 33.33% of the TI Note: The foreign investment in the total project must be at least 25%. No minimum investment is set for the Chinese partner. Table 13.1 Categories of total foreign investment and investment-capital ratios

6 13.2 Inflow of foreign direct investment Sectoral distribution Regional distribution Contributions to the Chinese economy

7 YearProjectsUtilized FDI YearNumberGrowth (%)(US$ billion)Growth (%) , , , , , , , , , , Source: NBS (2011). Table 13.1 Categories of total foreign investment and investment-capital ratios

8 Source: UNCTAD (2011). Notes: (1) Figures are measured in US Dollars at current prices and current exchange rates in millions. (2) The UNCTAD figures include only non-financial FDI. Figure 13.1 Annual inward foreign direct investment flows to China,

9 Figure 13.2 The structural changes of the FDI in China (2000 and 2010)

10 Figure 13.2 (cont’d)

11 The FDI’s Contributions to the Chinese economy: Increase trade growth and participation in the international segmentation of production Build dynamic specialization Increase export competitiveness Become important source of capital Create jobs, upgrade skills and raise wages of employees Raise factor productivity and increased technology transfer Upgrade China‘s industrial structure Increase domestic competition Increase industrial performance

12 13.3 Outward direct investment Historical evolution China’s “Going Out” strategy Characteristics and directions

13 Historical evolution Stage I ( ) Stage II ( ) Stage III ( ) Stage IV (1999-present)

14 China’s “Going Out” strategy: Avoid intensified competition in the domestic market Easy access to overseas sources of raw materials and energy Acquisition of technology, brands and know-how Avoid or overcome international barriers to trade

15 Source: UNCTAD (2011). Notes: (1) Figures are measured in US Dollars at current prices and current exchange rates in millions. (2) The UNCTAD figures include only non-financial FDI. Figure 13.3 China’s outward foreign direct investment flows,

16 Source: MOFCOM (2010). Figure 13.4 Chinese outward direct investment (ODI) by region, stock

17 Source: MOFCOM (2010). Figure 13.5 China’s outward direct investment (ODI) in 2009 (stock) by sector

18 DestinationAmount (million US$)Share (%) Hong Kong164, British Virgin Islands15, Cayman Islands13, Australia5, Singapore4, United States3, South Africa2, Luxembourg2, Russia2, Macau1, Canada1, Kazakhstan1, Pakistan1, Mongolia1, South Korea1, Germany1, UK1, Nigeria1, Myanmar Zambia Others17, World Total245, Source: MOFCOM (2010). Table 13.3 Top destinations for China’s ODI in 2009 (stock)

19 Country Reserves bn bb (oil )/ tcm (gas) Project nameProject type Date signed CompanyInvestment Saudi Arabia 264 / 7.2Section B (gas) Exploration & production 2004Sinopec

20 Notes: CNPC= China National Petroleum Corporation; NOC= national oil companies; Sinopec= China Petrochemical Corporation Group. Sources: Andrew-Speed (2009, p. 19) and Scissors (2011). UAE 98 / 6.1Uraq&Zora (gas)Acquisition2003Sinochem Oman 5.6 / 0.7 Blocks 36&38 Exploration & production 2004Sinopec Blocks 17&40Acquisition2003Sinochem Blocks 5 (oil) Exploration & production CNPC Yemen 2.8 / 0.5 Block S22001CNPC Block 69&712005Sinopec Syria 2.5 / 0.3 Qubibe (oil)Development2004CNPC Al Furat Prod Co (oil)Acquisition2005CNPC US$570m Al Zour (oil)Refinery2008CNPC US$2bn Block 10 (oil)Acquisition2008Sinochem Acquisition2010CNPC US$1,500m Country Reserves oil (bn bb)/gas (tcm) Project nameProject type Date signed CompanyInvestment Table 13.4 (cont’d)

21 Chapter conclusion: Foreign investment has played an increasing role in the Chinese economy. What is more important, the foreign enterprises have promoted the importation of advanced technology, equipment, and management and, above all, competition mechanisms from the advanced economies. Although China’s outward direct investment (ODI) is still smaller than its massive inward FDI, China’s overseas companies have been gaining momentum in moving international capital, investing across a broad spectrum of sectors ranging from natural resources to manufacturing to telecommunications and many others. As China’s economy continues to grow, China faces shortages in many raw materials (particularly oil, iron ore, aluminum, and uranium), and it must therefore build trade linkages with resource-rich countries (such as Australia, Russia, Brazil and the Middle East countries) to secure supplies.

22 Suggested reading Alden, Chris and Christopher R. Hughes (2009). “Harmony and Discord in China's Africa Strategy: Some Implications for Foreign Policy,” The China Quarterly, Volume 199, pp Awokuse, Titus O., Hong Yin (2010). “Intellectual property rights protection and the surge in FDI in China,” Journal of Comparative Economics, Volume 38, Issue 2, pp Bräutigam, Deborah A. and Tang Xiaoyang (2009). “China's Engagement in African Agriculture: ‘Down to the Countryside’,” The China Quarterly, Volume 199, pp Chen, Shaofeng (2011). “Has China's Foreign Energy Quest Enhanced Its Energy Security?” The China Quarterly, Volume 207, pp Haglund, Dan (2009). “In It for the Long Term? Governance and Learning among Chinese Investors in Zambia's Copper Sector,” The China Quarterly, Volume 199, pp. 627 – 646. Hong, Eunsuk and Laixiang Sun (2006). “Dynamics of Internationalization and Outward Investment: Chinese Corporations' Strategies,” The China Quarterly, Volume 187, pp

23 Suggested reading Huang, Y. (2001). “Why More is Actually Less: New Interpretations of China's Labor-Intensive FDI”, William Davidson Institute (WDI) Working Papers No Jiang, Wenran (2009). “Fuelling the Dragon: China's Rise and Its Energy and Resources Extraction in Africa,” The China Quarterly, Volume 199, pp Kim, Joon-Kyung, Yangseon Kim and Chung H. Lee (2006). “Trade, Investment and Economic Interdependence between South Korea and China,” Asian Economic Journal, Volume 20, Issue 4, pp. 379–392. Qin, Julia Ya (2007). “Trade, Investment and Beyond: The Impact of WTO Accession on China's Legal System,” The China Quarterly, Volume 191, pp Sun, Sizhong (2010). “Heterogeneity of FDI Export Spillovers and Its Policy Implications: The Experience of China,” Asian Economic Journal, Volume 24, Issue 4, pp. 289–303. Williamson, Peter J., and Anand P. Raman (2011). “How China Reset Its Global Acquisition Agenda,” Harvard Business Review, Apr 1. Xing, Y. (2006). “Why is China so attractive for FDI? The role of exchange rates,” China Economic Review, Volume 17, Issue 2, pp


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