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Historical Reasons for China’s Government FDI Role

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1 Historical Reasons for China’s Government FDI Role
Oded Shenkar Fisher College of Business The Ohio State University

2 GDP per Capita: China and Western Europe 1-1998 A.D.
$ 2002 16000 8000 4000 2000 1000 575 Western Europe Western Europe China Year SOURCES: Maddison Angus (2001). The World Economy: A Millennial Perspective. Organization for Economic Cooperation and Development. p.42; author’s calculations.

3 Source: Compiled from Maddison, A 2003, The World Economy-Historical Statistics

4 Imperial Footprints + Imperial Size Ambitions + Bureaucrats Rule
+ Local Fiefdoms + Ideology & Practicality + Western Technology, without Western Values © Oded Shenkar

5 Bureaucrats Rule 1st on social ladder Oversee the economy
Accountable to Emperor Modern Translation: Market may seem free, but bureaucrats call the shots © Oded Shenkar

6 Lessons in Foreign Engagement
Learning from one’s own experience The opium war and humiliation by the West: Use foreign technology to catch up but do not allow foreigners to establish a permanent foothold; if necessary, protect and promote domestic players at the expense of foreigners; monitor and control foreign investment; experiment on a small scale and move incrementally.

7 Not to worry much about getting things European to the Chinese, but rather about getting remarkable Chinese inventions to us; otherwise little profit will be derived from the China mission Leibniz’s advice to a Jesuit travelling to China Mokyr,1990/Berg, 2002

8 Learning from others Japan, South Korea, Taiwan, Singapore can teach China useful lessons, for example, that it is vital to gain technology transfer, first via entry more restrictions then via other means; that it is important to grow local champions and it is OK to do it at the expense of foreign competitors and that it is OK to achieve it via a combination of incentives to domestic players and disincentives to foreign players.

9 Reaching Out Learning to launch outward FDI

10 FDI Motivation of Chinese Firms (I)
Financial Motivation Cheap Capital (especially for SOEs) To mitigate Yuan exchange pressure To take advantage of lower foreign asset pricing (Result of Yuan revaluation and the financial crisis) Relaxation of foreign exchange control for overseas asset acquisition 4/06 and later measures

11 FDI Motivation of Chinese Firms (II)
Strategic and Managerial Motivations Develop global champions Fend off foreign and local competition at home Access technology Get close to market Shorten way to global brands Preempt trade limitations Develop managerial capabilities in global business, marketing, logistics

12 FDI Motivation of Chinese Firms (III)
Political Motivations To enhance China’s global profile To safeguard energy and raw material To counter currency manipulation charges To overcome protectionist sentiment To build domestic constituencies in the US and EU To build geopolitical standing

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