Chinese Foreign Investment Abroad and Global Business Strategy
No.232
June 2005
Senior Fellow Yan Zhu
ABSTRACT
- In recent years, foreign investment by Chinese businesses has been rapidly increasing. While investment is mostly in Asian countries, it also extends across the globe to Europe, Africa, and Central and South America. Chinese business investment is concentrated in three fields: (1) communications, information systems, and other information technology industries, (2) trade, wholesale, and retail industries related to market expansion, and (3) resource development. Materials and applications (M&A) and profit reinvestment are the rapidly growing methods of investment. Amongst Chinese companies engaged in such investment abroad, state-owned major enterprises are being watched particularly closely.
- Why is foreign investment by Chinese businesses increasing so rapidly? Firstly, China's high rates of economic growth are promoting investment abroad. Secondly, the Chinese government is encouraging and supporting foreign investment by businesses for the purposes of avoiding economic friction, acquiring resources, and cultivating global enterprises. Furthermore, at the individual business level, factors such as global management as part of survival and development strategies, as well as plans for acquiring overseas markets and technology are also actively spurring investment abroad.
- Foreign investment by Chinese enterprises is connected with strategies for unique, corporate multinationalization and global development. Utilizing various surveys, this report identifies the aims, means, target fields, and regions of Chinese foreign investment abroad.
- Government promotion and support, low-cost mass production, and other fields that Chinese businesses excel in lie behind this boom in investment abroad. On the other hand, system limitations, understanding of the conditions of countries targeted for investment, and management of overseas enterprises are also important themes. In the case of corporate acquisition, converting loss to profit and harmonizing and unifying business culture are essential. In the future, with Chinese economic development and the augmentation of corporate capability, Chinese enterprises' foreign investment abroad will continue to expand even more.
- The effects of investment abroad by Chinese businesses will also extend to Japan. While investment by Chinese enterprises in Japan is still low, recent cases of corporate acquisition of Japanese companies are increasing; indeed, some parts of local governments are actively welcoming such investment in Japan.