Observations on Chinese Foreign Direct Investment

ABSTRACT

The Chinese economy is developing at a striking pace, and high savings rates are the motivating force behind this investment-driven growth. Nonetheless, in an economy with a per-capita GDP of roughly US$1200, large-scale foreign direct investment (FDI) is unlikely.

Presently, strategic global expansion concentrated in the hands of a small number of major state-owned enterprises is the root of Chinese FDI. The Chinese government's move to promote the export of capital in order to pacify mounting pressures to revaluate the yuan is one sign of the government's recognition of the situation.

When viewed from a broad perspective, FDI by Chinese enterprises consists of "resources-oriented" investment aimed at mineral resource acquisition, "tech-oriented" investment aimed at acquiring new technologies, and "market-oriented" investment targeted at cultivating overseas markets. At the present time, resources-oriented investment and tech-oriented investment are heaviest, while market-oriented investment occupies only a small percent of total investment. As China's economy continues to grow, market-oriented investment will likely increase as well.