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U.S.

-China Economic & Security Review Commission

USCC Staff Research Report
March 30, 2011

Going Out: An Overview of
China’s Outward Foreign Direct Investment

by

Nargiza Salidjanova,
Policy Analyst for Economic and Trade Issues

Disclaimer:
This report is the product of professional research performed by staff of the U.S.-China
Economic and Security Review Commission, and was prepared at the request of the
Commission to support its deliberations. Posting of the report to the Commission's website is
intended to promote greater public understanding of the issues addressed by the Commission
in its ongoing assessment of U.S.-China economic relations and their implications for U.S.
security, as mandated by Public Law 106-398 and Public Law 108-7. However, it does not
necessarily imply an endorsement by the Commission, any individual Commissioner, or the
Commission’s other professional staff, of the views or conclusions expressed in this staff
research report.

Cover Photo:

Opening ceremony of the Chinese Overseas Investment Fair in Beijing, Nov. 3, 2009.
Source: “COFAIR 2009 – Onsite Photos,” Chinese Overseas Investment Fair Homepage.
http://www.coifair.org/2010/hg_5_en.asp.

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ABBREVIATIONS AND ACRONYMS
ASEAN
CIC
CNOOC
EIBC
FDI
FIE
M&A
MOFCOM
MOFTEC
NDRC
ODI
R&D
RMB
SAFE
SASAC
Sinopec
SOE
UNCTAD
WTO

Association of Southeast Asian Nations
China Investment Corporation
China National Offshore Oil Corporation
Export-Import Bank of China
foreign direct investment
foreign-invested enterprise
merger and acquisition
Ministry of Commerce (China)
Ministry of Foreign Trade and Economic Cooperation (China)
National Development and Reform Commission
outward foreign direct investment
research and development
renminbi
State Administration for Foreign Exchange
State-Owned Assets Supervision and Administration Commission
China Petroleum & Chemical Corporation
state-owned enterprise
United Nations Conference on Trade and Development
World Trade Organization

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GOING OUT: AN OVERVIEW OF CHINA’S OUTWARD FOREIGN DIRECT INVESTMENT
March 2011

China’s investments abroad are growing despite an overall decline globally in foreign direct
investment (FDI) following the 2008 financial crisis. That trend in Chinese investments abroad is
likely to continue, since China’s huge foreign exchange reserves are an increasing source of
mobile capital and is a key part of China’s official government policy. The receipts from China’s
existing global investments, combined with mounting trade surpluses, have made China the
world’s largest capital-surplus economy.1

Although China’s outward direct investment (ODI) is still small relative to 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 almost all raw materials, particularly in oil, iron ore, aluminum, and uranium, and it
must therefore build trade linkages with Australia, Russia, Brazil, and other resource-rich
countries to secure supplies.2

A significant jump in outflows happened when China’s ODI went from $26.51 billion in 2007 to
$55.91 billion in 2008, an increase of over 110 percent.3 By the end of 2009, China’s cumulative
FDI abroad (stock)4 reached $245.75 billion.5 Growth in China’s ODI flows has become very
significant in recent years, going from less than $100 million in flows in the 1980s to $56.53
billion in 2009 (the latest comprehensive figures available), making China the fifth largest
originator of ODI, by volume, from the 12th position.6 Despite the impressive growth trends,
however, Chinese ODI remains relatively small: China, including Hong Kong and Macau,
accounts for just 6 percent of global ODI stock today.7

1

In 2010. since most international statistical compilations.” UNCTADStat Database. creating comparability problems. and advanced technology. A significant share of Chinese investments is directed through tax havens. including investment in oil and iconic industry takeovers. Annual.Chinese ODI Flows (1982-2009) $60. new markets. statistics released by the Chinese Ministry of Commerce (MOFCOM) and the State Administration for Foreign Exchange (SAFE) reflect government-approved investment projects rather than actual money transfers. In addition. such as the 2 . investors looking for overseas deals and based in China and Hong Kong accounted for a tenth of global deals by value. Projects that do not receive official approval therefore do not show up in Chinese statistics or in international ones.org. http://unctadstat. such as Zhejiang Geely Holding Group’s purchase of Ford Motor's Volvo unit.000 $40.unctad.000 $0 Source: United Nations Conference on Trade and Development (UNCTAD). making it difficult to discern the ultimate destination of those funds.000 $10. Different countries also employ different definitions of foreign direct investment. The rapid development of China’s ODI activities reflects not only its economic maturation and integration into the global marketplace but also its need to expand overseas to supply China with natural resources.000 $30.000 $20. “Inward and Outward Foreign Direct 8 Investment Flows.000 US $ million $50.9 Accurately describing the nature of China’s investments abroad is a challenge.

and so China has been seeking alternatives to diversify its investments and realize higher returns. however. China is increasingly engaging in mergers and acquisitions (M&A). and sometimes as little as U. $1 million per sector. 12 Many of these equity investments are less than $10 million. was atypical both in the size of the investment that it would have represented. With these caveats in mind. such as U. The Association of Southeast Asian Nations (ASEAN) shows that within receiving countries. Rather than simply establishing wholly owned subsidiaries abroad. with each of several sectors receiving small amounts of FDI (less than U.13 China has significant investments in the developed world. The Chinese style of overseas investment also bucks international trends in another way. China National Offshore Oil Corp. First. recent years have seen a dramatic increase in Chinese outward FDI and an even larger potential for growth. Chinese outward direct investment is widely dispersed and spread in relatively small amounts. bear low interest rates. which today are mostly recycled into rich countries. Year-to-year changes in FDI definitions or in reporting practices in some countries also make it difficult to look for trends even in Chinese FDI practices in a single country. $10.000). 3 .14 This trend has been masked by high-profile Chinese overseas investments that have generated media attention and public alarm.World Investment Directory compiled by the United Nations Conference on Trade and Development (UNCTAD). Treasury securities10 and the debt of Fannie Mae and Freddie Mac. China has a surplus of savings. in contrast to the historical pattern of developing countries running large trade deficits and carefully husbanding hard currencies. China’s sovereign wealth funds and its central bank act as portfolio investors.S. Second. for instance.S.S.11 These investments. it is possible to draw several broad conclusions about Chinese outward FDI practices. and in the attention that it attracted.’s (CNOOC) failed bid to buy Unocal in 2005. So far. buying bonds. Ministry of Commerce statistics show that as of 2009. there were Chinese overseas investments in 177 countries or territories (including Hong Kong and Macau). Chinese FDI is often subdivided among different sectors. rely on MOFCOM statistics.

to establish investment in other 4 .22 During the first stage (1979-85).19 (See Appendix I for a list of China’s recent outward investment deals. buoyed by Chinese government financial support. including nonstate-owned firms. all of which are state owned. Only state-owned companies. EVOLUTION OF CHINA’S OUTBOUND INVESTMENT AND ORGANIZATIONAL BACKGROUND Since its inception. as well as provincial and municipal economic enterprises.Finally. especially for firms in deals involving oil and minerals or telecommunications. Chinese ODI. which still retains a great measure of control. with total investment amounting to about $197 million. the Chinese government began gradual liberalization to allow more enterprises.18 In 2009. still managed to grow by 1 percent.17 In 2008. The government has selected certain strategic industries for overseas expansion and has chosen the markets where this expansion should take place.16 The Chinese government’s support for these industries includes a variety of subsidies as well as access to low-cost financing from the largest banks.23 During the second stage (1986-91). This heavy government involvement. geopolitics. even as global ODI fell by 15 percent as a consequence of the financial crisis.15 Chinese governments at various levels often appoint executives in such Chinese firms and finance the deals through state banks. Chinese ODI has been initiated or approved by the state. Chinese outward investment activities are often directed by the Chinese government. when global ODI plummeted by 43 percent. largely through state-owned companies. and competitiveness. China was just opening up to the world. ensured that foreign investments would align with the country’s long-term development strategies. could invest overseas. There were only 189 approved investment projects. which are required by the government to remain under government oversight or control. Chinese ODI flows more than doubled. and foreign trade was still in the mighty grip of government control.21 China’s ODI has gone through four stages of development.20 The government’s push for the development of national industry champions and the procurement of overseas natural resources underpins a broader agenda of economic nationalism focused on energy security.) I.

China entered its current stage of ODI development.2 billion. and lack of management expertise. China’s Ministry of Foreign Trade and Economic Cooperation (MOFTEC) tightened approval procedures. China’s “going global” strategy was consolidated. The third stage (1992-98) proved to be one of great success and disappointment. financial assistance and foreign exchange assistance. were approved. the National Development and Reform Commission (NDRC) and the Export-Import Bank of China (EIBC) jointly issued a circular to encourage overseas investment in specific areas: “(1) resource exploration projects to mitigate the domestic shortage of natural resources. (3) overseas R&D [research and development] centers to utilize internationally advanced technologies.25 Starting in 1999. and important legislation was enacted to aid foreign investment. 891 projects. products. corruption. equipment and labor. and other incentives to Chinese enterprises wishing to tap overseas markets. The essence of the “going global” strategy is to promote “the international operations of capable Chinese firms with a view to improving resource allocation and enhancing their international competitiveness. the Asian financial crisis struck. the effectiveness of the strategy may have 5 . Following liberalization. ODI activities leveled off but still increased $1. setting up rigorous screening and monitoring processes for any overseas venture of over $1 million. provided they had sufficient capital and a suitable foreign partner. Many unprepared countries suffered heavy losses due to institutional weakness. However. mostly across Asia.countries. managerial skills and professionals. Alarmed by the hemorrhage of precious foreign exchange assets.28 Partly as a result of these preferential policies and partly due to China’s continued growth. amounting to $1. and (4) [mergers and acquisitions] that could enhance the international competitiveness of Chinese enterprises and accelerate their entry into foreign markets.24 As a result. As liberalization reforms progressed and companies began aggressively engaging in real estate and stock speculation. for instance. (2) projects that promote the export of domestic technologies. Chinese ODI flows soared dramatically.” 27 The State Council started to grant export tax rebates.2 billion in total investment.”26 In October 2004.

29 The decision by the State Administration of Foreign Exchange to abolish quotas on the purchase of foreign exchange for overseas investment on July 1. and Beida Jade Bird (all companies listed on stock-exchanges) are owned by the regional governments of Beijing. For example. centrally-controlled state-owned enterprises (SOEs) provided about $38.33 Private enterprises accounted for $345 million (or 0. 34 The 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment. Lenovo. China Banking Regulatory Commission has been allowing commercial banks to make loans for cross-border M&A. MOFCOM reduced approval time.6 percent) of the total ODI flows. but is also due to the sectoral distribution of investment.31 In 2009. Rationale for China’s ODI Realized and planned foreign direct investment deals indicate that government encourages Chinese enterprises to invest overseas in order to gain access to raw materials and advanced technology from abroad. and promote China’s exports. They may include state enterprises that are governed by local (provincial or municipal) governments. the bulk of China’s ODI remains the province of state-owned enterprises. TCL. For example. and transferred authority to local MOFCOM branches. since December 2008. while restrictions on the use of foreign exchange were considered too stringent. increase foreign exchange earnings. In 2009. 32 Until further liberalization reforms take place.35 This SOE bias is explained in part by China’s continuing control over nearly every aspect of its economy. 6 . 2006 has helped to ease the barriers. compiled by MOFCOM.6 percent) of the total Chinese ODI. the approval process was found to be unnecessarily complicated. lifted value thresholds. are often also expected to make profits. does not provide statics on the ownership breakdown for companies responsible for the rest of the capital (about 30 percent). and companies partially owned or controlled by the state. Chinese FIEs. discussed below. though predominantly state owned.been hampered by certain government regulations. in a 2005 survey of Chinese companies. Shanghai and Guandong.2 billion (67.30 The Chinese government has been taking further steps to simplify and encourage foreign investment by Chinese firms. For example.

The natural resource-seeking ODI of the Chinese energy majors is intimately connected with the government’s pursuit of a national energy security agenda to secure overseas assets and supply agreements. China’s fourth-biggest producer of the fuel.41 Also in 2009. copper. requiring China’s energy firms to purchase equity in upstream energy suppliers. agreed to buy Australia’s Felix Resources Ltd.24 billion to secure high-potential oil blocks in West Africa and Iraq. bought the Swiss oil explorer Addax for $7. one of China’s largest steel producers.Access to Raw Materials and Energy: The need to secure access to overseas energy resources and raw materials to support China’s high economic growth rate continues to be a key strategic driving force. principally through overseas acquisitions.38 Although in 2009. and providing much-needed transport and communications infrastructure.”37 Another example of the government’s close involvement with and support of overseas-directed energy acquisitions is the current conditions stipulated by the influential policy-setting National Development and Reform Commission (NDRC).40 For example.42 7 . China has moved from being East Asia’s largest oil exporter to becoming the world’s third largest importer of oil in 2008. while China Petroleum & Chemical Corp. for about $2. including iron ore. acquired a 15 percent ($240. Over the past 20 years.5 million) stake in Aquila Resources in Australia in 2009 as part of a strategic cooperation agreement to expand Aquila’s steel raw materials projects. gas.36 A similar picture of explosive growth in demand on the part of China has also been forming in the case of aluminum. a process sometimes called “dollar diplomacy. the largest Chinese oil refiner. Meanwhile. behind the United States and Japan. the Chinese authorities have been courting the governments of host states aggressively by strengthening bilateral trade relations. (Sinopec). evidence shows that M&As in oil. investment in the form of M&A comprised only 30 percent of the total ODI. Yanzhou Coal Mining.39 Most M&A deals in 2007-2009 were in the energy and minerals sectors. awarding aid. nickel. and other key commodity products. coal. and mining are playing a growing role in Chinese outward direct investment.9 billion to secure supplies. although the largest transactions tended to be purchases of minority stakes in global financial institutions. and manganese. iron ore. Shanghai Baosteel.

in 1988. acquired for $14 billion in 2008. collapsed. Brands. other mergers have been designed to help Chinese firms acquire advanced technology. Chinese firms typically look for “bargains” in the American or European markets—firms that have good brand recognition but are in dire financial straits—and purchase those firms as a way to gain a foothold in developed markets and learn marketing skills.There were other deals.43 The bid to double its shareholding in Rio Tinto. Mergers and acquisitions may comprise only a small percentage of Chinese outward investments. an Anglo-Australian iron ore producer. to protect China’s supply of ores. but they more frequently serve as the vehicle for Chinese investment in developed markets. but the largest was the one that did not happen: In 2009. particularly within the United States. Chinalco already owned 9 percent of Rio Tinto shares. and Know-How: While the attempted deals that have garnered the most attention have generally involved natural resources. despite the backing of the Chinese state. the Shougang (Capital) Iron and Steel Corp. as it also acquired a world-class brand. the largest mining company in the world. making it the largest overseas purchase by a Chinese company ever. and managerial know-how. and thus obtained access to the company’s high-tech design capability in steel-rolling and casting equipment. FIEs are encouraged to enter joint ventures or to purchase foreign companies through which they can absorb state-of-the-art technologies and thus “leapfrog” several stages of development and upgrades. Chinalco faced embarrassment abroad and intense criticism at home. 8 .45 Another example is Lenovo’s purchase of IBM’s personal computer division in 2005. manufacturing processes. the Chinese state-owned aluminum producer Chinalco abandoned a $19. The 2008 purchase was made in an attempt to head off a takeover bid for Rio Tinto by BHP-Billiton.44 Acquisition of Technology. Lenovo was able to gain managerial and commercial experience in international marketing and advertising. purchased 70 percent of the California-based Mesta Engineering and Design Inc. made to further consolidate its hold on mining assets. For instance.5 billion bid to double its stake in Rio Tinto. 46 China has capital available to invest in any business if it believes that it is in China's national interest.

In 2009. For example. Sprint Nextel Corp. Chinese firms have realized that they cannot compete on low cost alone and have targeted overseas acquisitions as a route to enhanced research. the Cayman Islands. and brand recognition. acquired Ford Motor's Volvo unit in 2010 in a $1.47 As in the natural resource sector (attempted acquisitions of Unocal and Rio Tinto are good examples). telecommunications infrastructure. As Wong and Chan argue in “China’s Outward Direct Investment: Expanding Worldwide. Since foreign companies initially control virtually all intellectual property in China and account for 85 percent of China's technology exports. China does not have to spend decades building up brand names because it can simply acquire existing well-known brands through government funded firms.” 50 These firms’ efforts at overseas expansion are thus responses to saturated domestic markets or attempts to gain first-mover advantage in untapped markets overseas rather than attempts to further Chinese strategic interests.8 billion deal.” “though predominantly state owned.Moreover. Investment in tax havens is a major component of Chinese outward direct investment and one that makes the ultimate destination of Chinese overseas investment especially difficult to track. excluded Chinese telecommunications-equipment makers Huawei and ZTE from a contract worth billions of dollars largely because of national security concerns about the two companies’ ties to the Chinese government and military. one of China’s biggest automotive companies.49 Competition in the Domestic Market: One motivation for investing abroad that gets less attention is the search for new markets.S. concerns over the involvement of the Chinese government in commercial deals can lead to failed transactions: In 2010. Hong Kong. and the security implications of integrating their equipment into critical U. Nanjing Automotive acquired British car manufacturer MG Rover’s brand in 2005. and the British Virgin Islands collectively received 79 9 .48 The trend toward expansion in Chinese cross-border M&A purchases is driven by the same factor as ODI growth in general—the intensified level of domestic and international competition faced by Chinese companies. This effort has grown in importance as domestic Chinese markets have become more competitive. [firms that ‘go global’+ are still motivated by profit maximization. Geely Automotive. development.

Chinese firms also invest overseas in order to aid their exports to the receiving country.S. firms (especially in light industry) were encouraged through subsidies and other incentives to set up plants abroad that could process Chinese raw materials or assemble Chinese-made components. Chinese firms have continued to build factories in countries that have relatively unfettered access to the American and European markets.55 10 .51 Round-tripping—the practice of taking money out of China and then “investing” it back as new investment in order to qualify for special tax breaks reserved for foreign investment—especially via Hong Kong. clothing and footwear (TCF) products had limited access to the U. the BBC reported in early 2002 that a Chinese company planned to build a large cotton spinning mill in Mauritius to take advantage of the African Growth and Opportunities Act.54 Although WTO accession has lowered the tariffs and quotas on Chinese exports. market.53 International Barriers to Trade: A final motivation for Chinese investment abroad is a desire to avoid foreign quotas.percent of China’s net. market. and other barriers to Chinese-made goods. as much of this money is reinvested in domestic Chinese enterprises (a more detailed overview of round-tripping follows in a separate section).52 But the government’s overall commitment to transparency is diminished by the extensive investments by state-owned firms through secretive tax havens. nonfinancial FDI outflows. Between 1999 and 2001. This was a more compelling motivation for overseas investment before China’s World Trade Organization (WTO) accession. For instance. by promising fund transparency.S.” in order to avoid American textiles quotas for non-WTO producers. the $332 billion China Investment Corporation (CIC). A more serious accounting problem is the lack of transparency created by China’s heavy reliance on tax havens. “before China became a member of the WTO. TCF firms consequently invested in Australia and then exported ‘Made-in-Australia’ products to the U. its textiles.S. as Wong and Chan describe. means that these numbers probably yield inflated estimates of the size of Chinese investments abroad. tariffs. The Chinese government has tried to diminish global anxiety about its principal sovereign wealth fund. which gives African goods duty-free access to the U.

Political and financial support for such stateowned or state-affiliated enterprises often gives them an advantage over more marketoriented western companies. or retains strong government ties but that has some flexibility: Examples include Haier (appliances) and Lenovo (computers). Asia.Furthermore. Huawei (telecommunications) has tried for 11 .” large multinational firms with globally recognized brands able to compete in the international marketplace.58 A variation of the state-owned national champion is a hybrid that is at least partially owned by the government. and elsewhere. and potentially engaging in other actions to promote the interests of the state and the Chinese Communist Party. thus significantly reducing their cost of capital. A more indirect avenue of governmental support to Chinese enterprises seeking expansion abroad is the opportunity for partaking commercially (through the preferential awarding of construction contracts. especially since they receive high levels of state support and are allowed by their government owners to forgo profit in favor of aggressively seizing market share. 57 A top priority for the Chinese government under its “going global” strategy is the creation of a number of “global champions. State support for the overseas expansion of Chinese enterprises takes a number of different forms. as the former may not be subject to the same fiscal discipline by their owners or investors. Such state-owned companies can be fearsome international competitors.56 The Role of the State in China’s Outward FDI Behind much of the concern over Chinese investments abroad lies the fear of the Chinese state—acting through its large state-owned enterprises—acquiring increasing power and influence abroad. buying German television brand Schneider and keeping production in Europe was a way for Chinese television manufacturer TCL to avoid European quotas on Chinese television imports.) in Chinese foreign aid programs in developing economies throughout Africa. These include direct and indirect subsidies and favorable financing in the form of credit lines and low interest rate loans from state-owned banks. etc.

the central government has made SASAC. as unprofitable strategic investments will yield no benefits to SASAC. As Barry Naughton argues. SASAC’s mandate to streamline central-level SOEs by forcing the least profitable ones to close or to merge with other firms (Li Rongrong.59 Even if SASAC wished to prioritize strategic concerns over economic ones. the number of state actors involved in approval and management of ODI projects has multiplied. has declared his intention to decrease the number of SASAC firms to fewer than 100 within the next few years) also encourages firms to prioritize short-term growth over strategic and other concerns if they wish to survive. created in 2003 to manage the large. central-level SOEs. more likely to prioritize profitability over strategic interests. 12 . In 2007. with limited success. it is unlikely that the agency has the power to force the firms nominally under its supervision to follow its mandate. But the Chinese government has altered the governance structure of some SOEs not only to make them more flexible and internationally competitive but also more profitable. By giving SASAC a stake in the financial success of the firms it oversees. to counter perceptions that it is also government-controlled. is required to reform the SOEs under its control to create profitable “national champion” firms. the then-head of SASAC. These hybrid government-private firms aggressively promote themselves as private companies. like the large SOEs. making an already difficult process more so. in part because their attempts to acquire foreign companies or joint venture partners sometimes meet with objections because of their Chinese government connections. The State-owned Assets Supervision and Administration Commission (SASAC). As overseas investment has expanded and as the central government has relaxed controls on investment abroad. with SASAC receiving a share of the profits of the SOEs under its supervision.years. SASAC finally succeeded in establishing a system of aftertax profit distributions.

60 The picture is further complicated by the fact that the state-owned firms that defy their state owners also have state-appointed managers. That was obvious during the past few months in the saga of China Eastern Airlines. SAFE and MOFCOM allowed foreign investments of less than U. At the central level. and SASAC. $1 million had to be approved at the central level). but in the end. Chinese embassies provide additional support to foreign-investing firms by conducting feasibility studies to evaluate the chances of success of proposed Chinese investment projects in the host country. beginning in 2003. State banks. and protection against currency fluctuations in the host country.S.S. including the government’s China Export-Import Bank.62 According to the China Center for Economic Research. $3 million to be approved at the provincial level (prior to 2003.63 Provincial officials are involved as well. insurance. Singapore Airlines.” The China Development Bank and the China Export & Credit Insurance Corporation have also played a role in fostering overseas investment. while the power of SASAC has arguably grown somewhat. 13 . an administrative agency that clearly ought to have had the bureaucratic power to impose its solution. bureaucrats. the power of the large central government enterprises has grown even more dramatically. where economic interests thoroughly trumped the effort of SASAC. investments of more than U. signing an agreement to provide firms that “go global” with risk assessment.61 SASAC is not the only state bureaucratic agency involved in fostering overseas investments. did not. SAFE and MOFCOM are also involved.Over the past few years. all the firms under SASAC control have top managers appointed either by the Communist Party Organization Department or by SASAC. 64 The result is an alphabet soup of agencies. play a role in the outward direct investment process by providing loans to enterprises that wish to “go global. and businesses looking to regulate or profit from Chinese firms’ overseas investments.

partially as a consequence of the 2008 global financial crisis. including a stake in U. and most are invested in highly liquid and secure U.65 These holdings are managed by an arm of the central bank. The harsh criticism faced by CIC from the Chinese public and government let to a reassessment of its investment strategy. resulted in major paper losses. DISTRIBUTION OF CHINA’S ODI BY DESTINATION AND TYPE Geographical Distribution of Chinese ODI The internationalization of Chinese ODI has intensified. Treasury bonds.-China Commission’s 2008 Report to Congress. and efficiency-seeking. the State Administration for Foreign Exchange. refer to chap. CIC is not the only investment arm of the Chinese government. (For a detailed look at SAFE.7 percent. CIC.S. CIC made several smaller purchases. but the true breakdown of the destination of China’s ODI is unknown because a 14 . nearly $2. Unhappy with the low interest rates. China’s government has started taking small steps to diversify away from the Treasuries and into higher-yielding assets.5 billion in 2009. and China’s other investment vehicles. driven by resource-. According to the 2009 MOFCOM Statistical Bulletin of China’s Outward Foreign Direct Investment. in part to move into foreign equities and direct investments in investment banks and hedge funds. In 2009. and its investments have been scrutinized for emerging trends. asset-. investment firm Blackstone and investment bank Morgan Stanley. 1. of the U.66) The first few investments made by CIC. as well as by the “going global” strategy.65 trillion by the end of 2010 and growing by as much as $500 billion a year. policies aimed at promoting export growth have allowed China to accumulate vast foreign exchange reserves.China’s Sovereign Wealth Funds and Outward Direct Investment Over the last 30 years.67 II.S. China’s ODI flows were $56. was created in September 2007. but it is the most prominent. mainly in the commodities industry. China’s official sovereign wealth fund. and made a return on investment of 11. sec. 2.S. the China Investment Corporation.

Hong Kong and tax havens69 alone received 79 percent of total Chinese outbound investment. As Table 1 indicates.S.837. which is perhaps explained in part by their 15 .025.060.57 World Total $245.96 Myanmar $ 929. 12 percent went to the Cayman Islands and the British Virgin Islands alone) or in Hong Kong (67 percent in 2009).94 British Virgin Islands $ 15.670.23 Canada $ 1. U.217.80 Germany $ 1.10 Singapore $ 4.32 United States $ 3.38 Source: MOFCOM.09 Mongolia $ 1.484.28 Nigeria $ 1.857. from where the money can be directed to projects around the world.” Table 1 – Top 20 Destinations for China’s ODI in 2009 (stock. $ millions) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Destination Amount Hong Kong $164.577.07 Australia $ 5.338.220.863.241.24 UK $ 1. 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment (Beijing: 2010).66 South Korea $ 1.86 Luxembourg $ 2. with some later funneled into foreign countries as FDI and some subsequently recycled back into China as “new FDI.028.88 Zambia $ 843.755.68 Also complicating matters is the practice of round-tripping.97 Other $ 17.34 Kazakhstan $ 1.306. although geographically dispersed. a significant portion of China’s ODI (stock) is concentrated in a few countries.498. In 2009.38 Russia $ 2.516.69 Cayman Islands $ 13.37 Macau $ 1.large share of it was made in the world’s tax havens (in 2009.42 South Africa $ 2.696.21 Pakistan $ 1.082.458. which many Chinese enterprises use to park a large proportion of their foreign exchange holdings in Hong Kong.

with the aim of expanding their market share in the host countries and reducing production costs. flows of Chinese ODI increased from $462.Stock (US $ million. East 75% Source: MOFCOM.5 percent of ODI flows. Asia and the Middle East surpass all other regions combined as the top regional recipient of Chinese investment. For example. Southeast Asia in particular.role as round-tripping hubs.71 (See Appendix II for select countries.) Chinese 2009 ODI by Region . by region. At 75.72 The 2009 Statistical Bulletin on China’s Outward Foreign 16 . percent share) North America 2% Oceania 3% Latin America 12% Europe 4% Africa 4% Asia and M. But there are other factors.74 million in 2009. 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment (Beijing: 2010).03 million in 2008 to $908. the top destination for Chinese ODI. For the United States. despite inclusion of the tax havens under Latin American regional designation and China’s growing interest in Australian mineral wealth.70 The regional bias in favor of Asia is explained by the inclusion of Hong Kong. it may also be partially explained by Chinese companies setting up their production facilities in the region. a jump of 49 percent.

-bound investment for the first nine months of 2010 grew by 530 percent from a year earlier.000) Industry Wholesale and Retail Manufacturing Finance Transportation. $10.097 28.65% 5.54% 94.S.51% 0.83% 0. 2009 (U.300 Chinese companies with investment in the United States. computer services. 22.013 13. technology services.24% 1. Sectoral Composition Chinese ODI targets a wide variety of business areas. and fish Residential services and other services Mining Housing and food Other Industries Total 2009 Flow Share of Amount Total $12.45% 1.S.842 0.573 14.48% 2009 Stock Share of Amount Total $95. Table 2 – Chinese ODI to the United States.41% 100% 1.037 1.52% 2.422 6.34% 11. reflecting the diversified nature of the country’s domestic industries and the Chinese government’s considerations.382 100% $333.19% 48. and postal Scientific research.873 41.87% 2.064 15. p.598 166 $90.15% 2.534 5. forestry.484 13. The consistently 17 .217 18.717 0.73 According to the Ministry of Commerce.42% 22. and geological surveys Rental and business services Information transfer. 74 The sectoral distribution of Chinese ODI to the United States is represented in Table 2.141 4.047 1.592 3.38% 1. cattle. storage.79% 4.218 2.528 4. which contrasted with 10.84% 0.761 1.041 794 1. by Industry.18% 1. China’s U.54% 1.55% 396 0.323 6.Direct Investment also said that there were over 1.76% 1.874 Source: MOFCOM.68% 14.265 28.44% 22.15% 1.4 percent during the same period for China’s total ODI.812 0.006 0.78% 3.69% 12.615 1. and software Construction Real estate Agriculture.90% 1. 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment (Beijing: 2010).74% 37.

and about 40 percent in 2006 but dropped to less than 16 percent in 2009. The natural resource sector. is the third biggest and has farreaching impacts. China Metallurgical 18 . bought a 75 percent stake in an oil field in North Africa for $394 million. the flow of investment in natural resource extraction accounted for nearly half of the total in 2003.high percentage of investment flow in the service sector (30 percent in business services and 19 percent in finance in 2009) reflects the fact that the ODI is largely used to serve and promote the export of Chinese commodities. in October. gas.Stock Agriculture 1% Other 3% Mining 16% Manufacturing 6% Construction 1% Business Services/Leasing 30% Real Estate 2% Finance 19% Wholesale and Retail 14% IT 1% Transportation and Storage 7% Source: MOFCOM. 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment (Beijing: 2010). also state-owned. Sinopec. and mineral extraction in particular are important areas for the Chinese.5 percent stake in the Indonesian offshore Tangguh Gas field from British Petroleum Co. Examples of ODI projects in this sector include massive acquisitions by the stateowned CNOOC. followed by the purchase in March of a 5 percent stake in the Northwest Shelf natural gas field off the coast of Australia for $320 million and a $275 million purchase of a 12. one third in 2004.76 And most recently in 2007.75 In October of the same year. In contrast. though small relative to services. Oil. Chinese 2009 ODI by Industry . which in January 2002 made a $593 million deal to buy the Indonesian assets of Spain’s Repsol YPF.

to date Chinese FIEs are yet to make an impact in global markets with recognizable names or brand loyalties. a Hangzhou maker of electricity meters. but promotion of domestic brand names in the international markets is a government-designated national priority. especially in the developed world.81 By and large.80 It is worth noting that many acquisitions by Chinese firms. Mainland companies are aggressively snapping up overseas assets in other strategic sectors. paid $8 million for Germany’s bankrupt Schneider Electronics to sell its products under the brand name in order to break into the European market. market reforms and generous incentives for FDI.77 China’s increased M&A activity has not gone unnoticed.78 National security concerns are also a factor. There are concerns that natural resource firms. and guarantees for repatriation of foreign exchange. for example. In June 2002. including tax concessions.Group bought the right to extract high-quality copper from an Afghan mine for $3 billion. a bankrupt outfit in Gainesville. have also 19 . and Holley Group. In fact. once acquired by Chinese state-controlled investors. For example. Florida. preferential terms for leasing of land and property. have involved a company that was ailing or insolvent but had advantageous endowments. However. Shanghai Baosteel paid $30 million for a 46 percent stake in an Australian iron ore mining joint venture with Rio Tinto PLC’s Hamersley Iron unit. but only after Congress hinted that the deal might be derailed by opposition from the Committee on Foreign Investment in the United States). the United States has successfully challenged in WTO consultations China’s subsidization and support for its “famous brands.” to the detriment of foreign competitors. can become “captive suppliers” to China instead of selling in the open market. 79 Huayi Group of Shanghai paid $20 million for the battery-making assets of Moltech Power Systems. they helped derail the bid by CNOOC to purchase Unocal (United States) in 2005 (Chevron ultimately outbid CNOOC. while in September. THERE AND BACK AGAIN: ROUND-TRIPPING The success of investment in China continues to attract large volumes of capital. television maker TCL International Holdings Ltd. gained a foothold in China’s booming wireless business when it spent $3 million for the mobile-phone design and software operations of Philips Semiconductor in 2001.82 III.

95 9. Hong Kong has consistently contributed from 40 percent to 60 percent of total FDI inflows to the Peoples' Republic of China.1 -3. the British Virgin Islands.”83 This is an issue of great concern for China’s MOFCOM. Table 3 – Top 10 Origins of FDI in China. however. and Western Samoa. 2005-2008 (U.2 3.3 1.23 11. many international firms allied with Hong Kong companies to gain access to the China market. since even by conservative estimates as much as a quarter of China’s official FDI is actually masked as Chinese funds coming home to take advantage of preferential tax and other government policies. this phenomenon was easily extrapolated from the statistics on the top 10 origins of inbound FDI in China (see Table 3). Hong Kong remains the largest “foreign” investor in mainland China. the Cayman Islands. In 2009.20 6. Prior to China’s WTO accession.encouraged Chinese investors to move money offshore and then bring it back to China disguised as foreign investment or “round-tripping.0 2007-2008 y-o-y Growth (%) 48. Mauritius. is not the sole facilitator for round-tripping capital that fled the mainland.6 Amount Invested 2008 $41.85 Partly as a result of this activity.S.6 4. changed its calculation.6 3.53 2. showing investments sourced in the given countries. which previously occupied top spots as origins of FDI in China (see Table 4). which compiles the data.26 4.7 39. and the State Administration of Taxation. Hong Kong.4 3. the State Administration of Foreign Exchange.02 $20. Until 2009. Hong Kong’s share has been supplemented by steady increases in FDI flows through vehicles registered in the tax havens.84 Estimation of actual volumes of round-tripping is very difficult.7 16. $ billion) Country/Region of Origin Hong Kong Virgin Islands (UK) Singapore Japan Amount Invested 2005 Amount Invested 2006 Amount Invested 2007 $17.0 16.25 2. In the past few decades.8 . the Chinese Ministry of Commerce. largely because investors who recycle their funds in this manner are unlikely to report their activities to the authorities. however. including those made through Barbados.60 20 $27.

7 12.9 3. 2009 (USCBC).95 5.0 Year-on-Year Growth (%) 31.-China Business Council 2010 (USCBC). the actual origin remains unclear.5 86 Source: MOFCOM.4 21.1 3.0 6. Note: 2009 data includes investments sourced in these countries but made through Barbados.6 4.89 2.S.5 17.1 3. $ billion) Country/Region of Origin Hong Kong Taiwan Japan Singapore United States South Korea United Kingdom Germany Macau Canada Amount Invested 2008 $41. Department of State’s China Investment Climate survey. According to the U. anecdotal evidence suggests that it includes investments from corporations headquartered in Organization for Economic Cooperation and Development (OECD) economies.S. largely.87 While the nominal origin of these recycled investments has been concentrated in Hong Kong and various tax havens.9 1.8 1. the Cayman Islands.0 1.-China Business Council 2007.3 -14.8 12.15 2.6 1. 2008-2009 (U. the British Virgin Islands.98 2.9 2.7 -12.7 1. compiled by U.7 4.5 22.2 1.5 7.06 1.9 76.5 1.54 2.8 60.S. Taiwan.S.2 3. Mauritius.7 2.3 3. compiled by U.4 2. and Hong Kong alone accounted for around 60 percent.6 3.9 3.53 1.36 2.9 0.1 Source: MOFCOM.17 3.0 1. 88 Despite the magnitude of 21 . The Ministry of Commerce reported that in 2009.1 2.3 percent of utilized foreign capital (of the $90 billion total). Table 4 – Top 10 Origins of FDI in China.6 0. and Western Samoa.6 245.5 Amount Invested 2009 $54.7 36.Cayman Islands South Korea United States Western Samoa Taiwan Mauritius Germany 1. China itself.6 2. and.5 -13.14 1.3 71.0 12.1 0.2 1.9 0. the top 10 countries and regions accounted for 88.87 1.6 2.9 3.

the remaining weakness of China's financial and legal systems and the lack of enforcement of property rights and contracts contributed to a sustained capital flight. as economic conditions improved in China.the phenomenon and its significant impact on the Chinese economy. risk management. and stayed abroad. that capital flowed to China under more favorable terms. however. manages to address the issue in its entirety in a one-page box (see World Bank 2002). waiting for further opportunities elsewhere. Even after WTO-compliant reforms. Prior to China’s WTO entry.90 Several incentives exist for investors to take their capital out the country and recycle it through Hong Kong or tax havens before bringing it back to China. Patterns of China’s FDI and Incentives for Round-tripping While incentives for foreign investment are the primary reason behind FDI round-tripping in China. and scholars. surprisingly little research has been conducted by international organizations. repatriation of capital previously removed from China is another. about 20 percent to 30 percent of the round-tripping FDI in China is actually capital returning postflight. 91 22 . These incentives can be grouped largely around issues of profit-making. for example. The World Bank. while the UNCTAD World Investment Report 2006 encapsulates the problem in one paragraph. and safety of capital. research institutions. large portions of the capital created in China was moved abroad. 89 Some scholars estimate that on average.

which took effect in January 2008. and many Chinese investors noticed this. and then bringing it back became a very common. Consequently. method for taking advantage of China's preferential policies for FIEs. 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment (Beijing: 2010). However. although. though not easy.Top 10 Recipients of Chinees ODI .92 The passage of this law and a subsequent circular addressing other related issues such as tax breaks for companies with high-tech status. and other favorable incentives to attract foreign investment. could lead to a contraction of roundtripping. 23 . China’s administration has become aware of this phenomenon and has taken steps to gradually phase out tax advantages and other concessional terms. taking capital out of the country. the effective income tax rate for FIEs was 11 percent. unified the corporate tax rate for FIEs and domestic firms at 25 percent. concessional land lease terms. or reduced rates). exemptions. coupled with tighter regulations on off-shore investment vehicles. the full effect would be hard to estimate.2009 (stock) Russia Macao South Luxembourg 1% 1% Africa 1% 1% United States Singapore 1% 2% Other 12% Australia 2% Cayman Islands 6% Hong Kong 67% British Virgin Islands 6% Source: MOFCOM. registering it abroad. It was very advantageous to be a foreign-invested enterprise. while domestic firms were taxed at 23 percent. Prior to the new law. Tax Advantages and Incentives: China has provided many tax advantages (such as tax holidays. The Enterprise Income Tax Law. as with all grey-market operations.

legally it becomes a Hong Kong entity that then may transfer some of its capital back to the mainland. thus completing the investment’s round trip. China’s banking services remain underdeveloped and weak. This is particularly true for big entities. when a mainland company is preparing to list in Hong Kong. it would register as a new local company there. that it is to their advantage to reinvent themselves as foreign capital holders and enter China in this way.Property Rights Protection: China’s basic legal framework is still in flux. which would then be counted by China as a very large portfolio investment.S. However. Many Chinese capital holders see. like PetroChina. with an injection of capital from the mainland. therefore.93 IV.S. Competitiveness of Hong Kong and Other Overseas Financial Sectors: A significant portion of China’s round-tripping is connected to Hong Kong. many Chinese investors choose to house their capital in Hong Kong or elsewhere in the developed world. though still insufficient. While the ownership of a company remains essentially the same. INTERESTS With the growth in Chinese overseas direct investment comes the possibility that these investments will play an increasingly significant role in the U. and enforcement is spotty at best. protection frequently afforded to foreign investors. taking advantage of the more stringent. THE FUTURE OF CHINESE DIRECT INVESTMENT AND U. What might this increased role mean for U. interests? 24 . Despite many reforms. The weakness of China’s markets means that companies preparing to make a public offering will usually go to Hong Kong in lieu of domestic alternatives like Shanghai or Shenzhen. economy. therefore.S. Hong Kong serves the majority of China's business. In addition to being a regional and international financial hub.

since overseas investors must abide by host country environmental. labor. almost half of Chinese investments folded within their first year or moved production to China. one of the European countries most successful at wooing Chinese investors. Compared to portfolio investments. The fact that the majority of Chinese enterprises that invest abroad are state-owned or state-controlled. and it has pursued free trade agreements. some argue that investments in developed countries with welldeveloped legal environments are good for both the receiving countries and foreign firms. receiving countries ensure that they receive safe products and learn more about the operations of foreign firms through disclosure/transparency requirements. The lack of transparency in Chinese investments is one problem. and transparency requirements. China has taken advantage of lowered prices on overseas investment opportunities to extend its global reach. China has also been focusing mainly on small stakes in foreign companies rather than on outright acquisitions. This trend is not unique to China. And even those that remained tended to be small businesses with only a few local employees. Furthermore. is another. especially in the natural resource sector. implying minimal job creation. and foreign firms learn better business practices. having already been burned by the loss of money in its first major investments in financial firms in 2008. including the ASEAN-China Free Trade Agreement. the most powerful firms in many developing countries are often partially or totally state-owned. However.94 FDI can create jobs in the host country or prevent jobs there from going overseas.96 Conversely. As a consequence of the global financial crisis. The rise in overseas investments by firms from the developing world and the rise in overseas investments by state-owned enterprises are thus inextricably linked. FDI tends to stay in the host country for a relatively long period.On the one hand. which came into effect in 25 . In Germany. and that many of them are firms in strategic sectors such as natural resources. there is broad agreement on the economic benefits to the receiving country of foreign direct investment as long as that country’s economy is transparent and competitive. FDI is not problem-free. China also conducts an active investment diplomacy: It has signed 120 bilateral investment treaties.95 Some suggest that Chinese overseas investments are cause for concern for security reasons as well.

but it is safe to assume that Chinese ODI will continue to grow. however. Restrictions remain on the use of foreign exchange. since they appear to have no clear strategy for the operation and development of their overseas branches. since the patterns of capital outflows are likely to change as China becomes more assertive in the use of its vast capital reserves. acquisition of internationally established brands.January 2010. China has become a capital-surplus economy. and its overseas investment has grown apace. One of the fundamental drivers of the continued growth in Chinese ODI will be the shortage of energy and raw materials to support the country’s economic expansion. 26 . and avoidance of trade barriers. for Chinese overseas investors.97 The Chinese government has been taking steps to ease and decentralize the regulatory procedure to encourage more overseas deals. including banking.98 The small scale and distribution of China’s ODI may not be a good guide for the future. and natural resource exploitation. nor have the most prominent Chinese overseas investments been successful (as the grassroots backlash against money-losing investments in U. financial companies by China’s sovereign wealth fund indicates). The current economic climate is too turbulent to make long-term conclusions about the future of China’s economy. China’s ODI is now globally diversified and involved in a wide variety of sectors. this places constraints on Chinese investors who do not have government support and access to hard currency. There are challenges ahead.S. Since the renminbi (RMB) is not convertible. manufacturing. Other motivations include access to natural resources and advanced technology.

these statistics help to illustrate the major trends in China’s acquisition of foreign direct investment. In February 2006. 27 . which were used to estimate future commitments. according to the U.Dim Sums: A Note on the Data This paper makes extensive use of MOFCOM’s 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment (the latest release available) for data and analysis of Chinese ODI. therefore. be taken with some reservations. MOFCOM announced that it would no longer report the value of contracted FDI deals. because local officials are evaluated on their ability to attract foreign investment. data most readily available from Chinese statistical sources generally have a reputation for inaccuracy and opacity. Unfortunately. This was in response.S.-China Business Council.99 For the purposes of this paper. All values must. however. to local officials’ exaggeration of these figures.

S.900 28% $330 $140 $270 $200 $1. with Alcoa CIC China Life Sinopec Huaneng Power CIC SAFE SAFE China Nonferrous Chinalco CNPC Zoomlion SAFE China National Cereals.6% 51% Bulk Minerals and Grange Blackstone Myanmar Oil and Gas Enterprise Awilco Offshore 50% Midwest 20% 20% Canada-based Tanganyika Oil 28 .200 $370 $470 $12.200 $2.200 $2.800 $100 $260 $560 $3.000 $150 $2.000 $3.280 30% Yantai Raffles Shipyard 45% 2.160 $5. Oils.500 $800 $1.000 $1. Commonwealth Bank of Australia. National Bank of Australia AppTec Lab Services Kelachandra and Manasara Industry Target Country Banking Pharma Australia USA India Australia Yemen Australia USA USA Australia Singapore USA France Britain Zambia Peru Niger Italy USA 80% 1. 2008-2010 Year Acquiring Company 2008 2008 SAFE Wuxi PharmaTech Minmetals (20%). $ million) $180 $150 $1.000 $250 $2.Appendix I: Chinese Investment Deals.6% 1% Soco Rio Tinto Visa Visa AED Tuas Power JC Flowers Total BP 60% 20% Compagnia Italiana Forme Acciaio TPG Steel Iron Oil Aluminum Finance Finance Oil Power Investment Energy Energy Copper Copper Oil Construction Investment Smithfield Foods Food USA Metals Oil Metals Iron Metals Metals Coal Oil Oil DRC Norway Myanmar Australia DRC DRC Australia Iraq Syria Shipping Construction Iron Investment Construction Singapore Germany Australia USA Myanmar 12% 1% 60% $140 5% $1. and Foodstuffs China Railway Engineering and Sinohydro CNOOC China Nonferrous Sinosteel China Metalurgical Sinohydro Shenhua CNPC Sinopec China International Marine Containers Sany Heavy Industry Jiangsu Shagang CIC CNPC 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 2008 Transaction Value (U.500 Shares Acquired (%) 1% Target Company Australia and New Zealand Banking.800 $2.300 $850 $850 $260 $3. Xingxing Iron's (35%) with Kelachandra and Manasara China Metallurgical Sinochem Chalco.

160 $940 Pacific Holdings 16.75% 15% 15% 29 Diageo Songbird Estates Athabasca Oil Sands Qatar Petroleum Emerald Energy Felix Resources Goodman Group Singapore Petroleum JSC KazMunaiGas E&P Oaktree Capital Management distressed asset fund Goldman Sachs distressed asset fund Baha Mar Resort Moly Mines Nobel Holdings Aquila Resources AES Copper Property Iron Oil Iron Iron Iron Philippines Japan Liberia Iran Australia Peru Canada Property Gas Copper Coal USA Kazakhstan Zambia Australia Metals Oil Iron Metals Banking Oil Real Estate Gas Investment Investment Copper Copper Iron Aluminum Power Food Property Property Oil Gas Energy Coal Property Hydro Oil Gas Australia Singapore Australia Australia USA Switzerland Australia Iran USA USA Canada Zambia Russia Australia Indonesia Britain Mauritius Britain Canada Qatar Britain Australia Australia Cameroon Singapore Kazakhstan Investment USA Investment USA Bahamas Iran Australia Russia Australia USA Oil Iron Oil Iron Power .9% investment in Morgan Stanley property fund KasMunaigas 85% 10% 19.250 $200 $300 $240 $1.9% 46% 24% 8% 17% Palmer’s Mineralogy PanAust Keppel.020 $130 $1.5% 19.700 $500 $530 $1.580 National Iranian Oil Company Fortescue Metals 2.500 $330 $370 $750 $450 $1.760 $770 $1.10% 19% 60% 11% $600 $600 $100 $2.000 $520 $2.600 $450 $520 $140 $1.600 $1.600 $480 $1.200 $160 $4.350 $1.500 $3.950 $1.000 $240 $800 $2.210 $7.2008 2008 2008 2009 2009 2009 2009 2009 2009 2009 2009 China Metallurgical 10 property companies China Union CNPC Hunan Valin Iron & Steel Shougang Group Wuhan Iron and Steel 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 2009 CIC CNPC China Nonferrous China Metallurgical Guangdong Rising Asset Management PetroChina AnSteel Minmetals CIC Sinopec CIC CNPC CIC CIC CIC Zhonghui Mining Xiyang Group Chinalco Shenhua Guohau Power CIC group of Shanxi companies CIC CNPC CNOOC Sinochem Yanzhou Coal CIC Sinohydro PetroChina CIC 2009 CIC 2009 2009 2009 2009 2009 2009 2009 CIC State Construction Engineering CNPC Hanlong Mining CIC Baosteel CIC $1. Singapore Petroleum Gindalbie Metals Oz Minerals Morgan Stanley Addax Petroleum Goodman Group Blackstone Blackrock Teck Resources Rio Tinto 70% 1.090 $800 $1.740 $100 $880 $2.

800 1.00% 9% 5% African Minerals ConocoPhillip BG Iron Oil Gas Oil 2010 2010 2010 2010 Tencent China Mobile Chongqing Food Group Hanlong $300 $300 $320 $140 10.900 2010 2010 2010 2010 Beijing West Industries Wuhan Iron and Steel Great Wall Motor Wuhan Iron and Steel Shunde Rixin China Railway Construction and Tongling Nonferrous Zijin Mining CNPC BAIC Hebei Zhongxin Shanghai Auto Jinjiang International Hotels China Metallurgical China Nickel Resources Baiyin Non-Ferrous.650 $270 $900 13. Pantheon Ventures.200 $100 $3. CITIC & Chang Xin Chalco CIC ICBC 2010 2010 2010 2010 CIC Sany Heavy Industry Wanhua Industrial CNPC $1.500 $200 $190 $180 2010 2010 Hudian Geely Auto East China Mineral Exploration and Development Bureau (Jiangsu) Poly Technologies CNOOC PetroChina CIC 2009 2009 2009 2009 2009 2009 2009 2010 2010 2010 2010 2010 2010 2010 2010 $650 $500 $190 $200 $400 $330 $150 $200 $220 $190 $350 $960 $530 $650 1.580 $250 22% Delphi MMX Mineracao Litex Motors Centrex Minerals Autos Iron Autos Iron Iron USA Brazil Bulgaria Australia Chile Corriente Resources Indophil Resources Copper Oil Autos Autos Autos Tourism Metals Steel Canada Australia Iraq USA Mexico India USA Australia Indonesia Metals Aluminium Investment Banking Uzbekistan Malaysia Britain Thailand BorsodChem INOVA Geophysical Equipment Investment Construction Chemicals Energy Sintez Ford Gas Autos USA Brazil Hungary USA Russian Federation Sweden Itaminas Iron Agriculture Oil Gas Coal 70% Saab 50% 50% 5% 60% 35% 2.00% Digital Sky Technologies Technology Telecom Agriculture Rare metals 55% 30 Moly Mines Brazil Mauritiana Argentina Australia Mongolia South Africa Sudan Sierra Leone Canada Australia Venezuela Russian Federation Pakistan Brazil Australia .2009 2009 2009 2009 2009 $100 $400 $120 $250 $1.100 1. Goldman Sachs Bridas Arrow Energy South Gobi Energy $100 Autos 2010 First Auto Works China National Chemical Engineering $500 Agriculture 2010 2010 2010 2010 China Railway Materials Sinopec CNOOC CNPC $260 4.30% 51% 51% 50% 50% 13% GM Thayer Lodging Resource House Oxus GIIG Apax Finance ACL Bank Lexington Partners.

DC: The Heritage Foundation.200 $420 2010 2010 2010 2010 2010 2010 2010 2010 2010 $100 7.350 $450 $700 $1. http://www.230 $2. 31 Syria USA Canada Brazil Brazil South Africa South Korea Indonesia Canada USA Australia Guinea Sri Lanka Brazil Ghana Canada South Korea Brazil USA Israel Peru USA Argentina Ecuador USA Australia Argentina Brazil Russian Federation Indonesia .220 $990 $3.200 $1. Metals 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 Tianyu Group CNPC Yunnan Chihong Tempo Group and Beijing city China Merchants Group Chinalco China Merchants Group Chery Bosai Minerals Jinchuan $1.100 $2.440 $2.heritage. Elecnor and Isolux Peregrino field Energy Gas Oil Power Oil $230 51% Wesizwe Platinu. January 10.500 $100 $1.500 $1.org/Research/Reports/2011/01/China-Global-InvestmentTracker-2011.2010 2010 2010 2010 2010 1.000 $150 $100 $440 $550 1.450 $200 $170 $680 Property Energy Metals Austos Shipping Iron Shipping Autos Aluminium Metals GM Technology Oil Oil Agriculture Copper Power Oil Oil Autos Caledon Occidental BTG Pactual Coal Oil Investment EuroSibEnergo Chevron Power Gas Source: Excerpted from Derek Scissors.470 $610 $500 2010 2010 2010 Shanda Games Sinopec CNOOC Sinochem Minmetals Huaneng Power CNOOC CNPC and Sinopec SAIC Guangdong Rising Asset Management Sinopec CIC 2010 2010 Three Gorges Sinopec 50% 45% 70% 80% Howards Pass Nexteer Auto Loscam Rio Tinto Aitken Spence Ghana Bauxite Continental Metals 40% 33% 60% Eyedentity Games Repsol Chesapeake Energy Makhteshim-Agan 50% 30% InterGen Pan American 1% $400 $2. 2011). “China Global Investment Tracker: 2011” (Washington.070 35% 1% 5% 2010 CNPC Hopu CIC State Grid Sinochem Jinchuan Group and China-Africa Development Fund 40% Shell Chesapeake Energy Penn West Energy Cobra.

45 188.24 1.587.02 $3. America & Caribbean $4.83 $7.53 2.S.777.237.26 1.479.089.082.66 L.68 20.184.57 929.263.24 609.845.42 1.01 1.21 $9.810.954.77 Macau 446.29 140.21 $1.55 $1.83 Algeria 5.41 845.025.01 3.40 6.50 $909.78 2.03 845.91 68.83 233.978.78 United States 502.458.89 36.205.209.91 $32.690.50 UK 75.45 Virgin Islands (UK) 532.268.694.935.603.43 Oceania $472.81 148.67 1.389.37 1.55 217.94 $650.34 $6.402.00 Australia 416.659.15 Cayman Islands 3.87 1.20 822.59 14.64 1.48 465.50 $183.58 587.028.32 795.19 1.61 129.77 58.62 702.45 $676.38 .469.72 1.95 5.24 276.18 58.52 1.91 South Africa 44.38 1.87 112.41 189.269.595.48 36.35 1.838.91 8.05 $79.93 3.619.46 794.93 $2.90 Canada 46.355.268.61 $19.86 $8.23 $899.37 $11.62 $75.83 598.19 79. Stock (U.217.82 $4.32 1.750.51 1.240.97 201.269.24 1.71 24.458.89 $5.970.48 468.477.755.803.58 4.21 268. 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment (Beijing: 2010).46 $33.15 108.31 837.99 $185.220.89 508.79 103.20 Hong Kong 24.068.94 4.26 $57.676.26 30.060.556.659.32 115.48 13.28 Germany 83. 164.863.272.443.983.69 360.560.76 1.444.68 6.37 $24.27 751.78 245.70 34.09 325.26 $543.29 Total $33.37 3.595.910.28 167.025.82 Nigeria 31.08 42.87 950.55 $40.133.40 $3.392.577.30 Africa $491.461.28 Asia & Middle East 32 $30.670.96 2.327.64 123.547.55 $117.23 $1.334.65 $1.47 910.048.626.316.93 1.10 $245.07 15.516.781.93 $131.89 $3.11 215.54 $5.05 North America $548.68 1.28 Singapore 164.880.857.327.82 $4. $ million) 2003 2004 2005 2006 2007 2008 2009 $26.35 472.421.507.222.46 107.32 665.22 $44.37 393.96 Russia 61.39 130.632.86 624.70 612.498.Appendix II: Regional Distribution of China’s ODI Chinese ODI by Region.70 3.830.23 1.54 10.32 $8.338.99 Kazakhstan 19.94 630.332.418.61 94.25 $2.62 Europe $487.837.254.700.49 494.816.240.49 171.29 $939.22 81.78 Pakistan 27.71 Source: MOFCOM.21 247.09 1.98 79.19 16.33 Brazil 52.31 $47.306.48 $1.

76 billion of nonfinancial ODI and $45.Chinese ODI by Region . http://nber15. 2007).73 billion of financial flows.8 billion of nonfinancial and $8. 1 This paper uses the broadest definition of FDI. America/Caribbean North America Oceania 2008 2009 Source: MOFCOM.000 $35. 6 Ding Qingfen. the Ministry of Commerce of the People's Republic of China (MOFCOM) aggregates nonfinancial and financial ODI in its reports (for example.org/en/docs/wir2010_en. “China’s Outward FDI: Past and Future.” in Proceedings of the NBER (National Bureau of Economic Research) Conference on China’s Growing Role in World Trade (Chicago: University of Chicago Press. 2009 年 度 中国 对外直接投资统计公报 [2009 Statistical Bulletin of China’s Outward Foreign Direct Investment] (Beijing: 2010). 33 . 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment (Beijing: 2010).000 $15. It is simply a term used to represent flows of investment that go out of the country—as opposed to those that go in.Flow (US $ million. usually per annum).000 $40.org/en/docs/wir2010meth_en. ODI is not functionally different from FDI. “Being Eaten by the Dragon. November 2.000 $20.000 $25. 2 Leonard K. Urged to Reduce Barriers. 2010. 167-176. 77.S. 2010).” China Daily.nber. unless otherwise specified. p. However.000 $5. pp. 7 Economist.000 $45.pdf. 8 Note that the UNCTAD figures include only non-financial FDI. For details. FDI flows comprise capital provided by a foreign direct investor to an FDI enterprise. portfolio investment is usually not included. http://www. “Methodological Note. 5. 2009 Statistical Bulletin of China’s Outward Foreign Direct Investment (Beijing: 2010). For a summary of FDI flows and stocks by region and country. Cheng and Zihui Ma. 2010). 4 FDI stock is the cumulative value of the capital and reserves attributable to the parent enterprise (the investor). p.99 billion of financial ODI). 75. or capital received from an FDI enterprise by a foreign direct investor (this data is usually compiled for a given period.” November 11. China’s cumulative ODI for 2009 includes $47. dollars. see UNCTAD. 5 MOFCOM.000 $2003 2004 2005 2006 2007 Asia and M. the stock figures include $199. see UNCTAD. 2003-2009) $50.pdf.unctad.pdf.” World Investment Report 2010: Investing in a Low Carbon Economy (New York and Geneva: United Nations. http://www.S. p.unctad. 2010.000 $30.org/books_in_progress/china07/cwt07/cheng. East Africa Europe L.000 $10. MOFCOM. similarly. World Investment Report 2010: Investing in a Low Carbon Economy (New York and Geneva: United Nations. a catchall term to include all instances where a foreign investor exerts control over domestic assets. 3 All figures in U. “U.

p.S.pdf. “China’s Outward Direct Investment: Expanding Worldwide.org/en/docs/iteiia20071_en. For the purposes of comparison. 2009 Statistical Bulletin of Chinese Outward Foreign Direct Investment (Beijing: 2010). 2010). November 2009). p.pdf. 2010. 14 Allen T. World Investment Report 2006: FDI from Developing and Transition Economies: Implications for Development (New York: United Nations Press. 18 Ken Davies.org/en/docs/wir2006_en.” March 15. http://www.S. pp. 2006).” China: An International Journal 1. “China’s Outward Direct Investment: Expanding Worldwide. IT. 2010). UNCTAD. http://www. 2009 Report to Congress (Washington. http://www. Government Printing Office. iron and steel.-China Economic and Security Review Commission. 2011. “Outward FDI from China and Its Policy Context. 75. p. civil aviation. power generation and distribution. “The Motivation Behind China’s Government-Initiated Industrial Investment Overseas. 16 Economist.dbresearch. http://www. World Investment Report 2006: FDI from Developing and Transition Economies: Implications for Development (New York: United Nations Press. pp.” November 11. 23 John Wong and Sarah Chan.S.pdf.2 (September 2003): 280. November 2007). 24 John Wong and Sarah Chan.2 (September 2003): 279-281.” December 2006. http://www.2 (Summer 2002). pp. World Investment Report 2010: Investing in a Low Carbon Economy (New York and Geneva: United Nations. July 31. and U. 15 These so-called “strategic and heavyweight” industries also include coal.2 (September 2003): 280-81. World Investment Report 2006: FDI from Developing and Transition Economies: Implications for Development (New York: United Nations Press.-China Economic and Security Review Commission.75 billion in 2009 (the latest figures available).gov/resource-center/data-chart-center/tic/Documents/mfh.pdf. p.aseansec.8 billion.org/en/docs/wir2006_en. which was around $245. MOFCOM. automobiles.pdf. “China Goes Global II: 2006 Survey of Chinese Companies’ Outward Direct Investment Intentions.” China: An International Journal 1. p. 22 Development stages adapted from John Wong and Sarah Chan.treasury. see U. The Party (New York. 2006).unctad. China’s holdings of U.org/5187-1. 34-69. 13 ASEAN Secretariat.unctad. Asian Foreign Direct Investment in Africa: Towards a New Era of Cooperation among Developing Countries (New York: United Nations Press. “Major Foreign Holders of Treasury Securities.unctad.txt. “Global Champion in Waiting: Perspectives on China’s Overseas Direct Investment” (Deutsche Bank Research.9 Economist.. 27 United Nations Development Program (UNDP). xvii. Treasury securities as of December 2009 were $894. 2007). 20 Mark Yaolin Wang. DC: U. “China’s Outward Direct Investment: Expanding Worldwide. August 4.” Columbia FDI Profiles (Vale Columbia Center: October 18. 210.2 (September 2003): 280-81. “China Buys Up the World. 12 MOFCOM. Department of the Treasury.S. Treasury securities amounted to around $1. p. 11 Economist. 5679.” South China Morning Post.” Pacific Affairs 75. Government Printing Office. p. For more information. “Being Eaten by the Dragon. “Being Eaten by the Dragon. 5. See U.” November 11.2 trillion by January 2011. 2009 Statistical Bulletin of Chinese Outward Foreign Direct Investment (Beijing: 2010).com/PROD/DBR_INTERNET_ENPROD/PROD0000000000201318.” China: An International Journal 1. 25 John Wong and Sarah Chan. Asia Pacific Foundation of Canada and the China Council for the Promotion of International Trade. Statistics of Foreign Direct Investment in ASEAN. “China’s Outward Direct Investment: Expanding Worldwide. NY: Harper Collins Publishers. p. and shipping. 2010. armaments.” November 11. “Mainland Enterprises Pour Cash into Foreign Investments.pdf. http://www. 55. and far eclipse stock of China’s global ODI.S. http://www. 5. 2003.S.org/en/docs/wir2006_en. 2006). 2006). 26 UNCTAD.” China: An International Journal 1. 2007 Report to Congress (Washington. 21 Andreas Lunding. 19 UNCTAD. 194. Cheng. DC: U. (Indonesia: 2006).S. 28 UNCTAD. 17 Richard McGregor. Chinese FDI data compiled from various tables of ASEAN member states’ inward FDI. 2010). 36-47.unctad. machinery. OSC ID: CPP20030731000039. 2010. 210. 10 34 . 210. Chinese holdings of U. construction.

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