Transcript Global Corporate Governance

ASIA @ RMIT
Trends in China’s Inward Foreign
Direct Investment
Presenter: Dr John Gionea
RMIT-TAFE Business School
April 2009
1
TOPIC PLAN
• China’s Open doors policy
• Growth of Foreign direct investment flows and the
slow down in China’s share of global FDI inflows
• Signs of growing nationalism in China
• Geographic trends
• Sectoral trends
• Australian FDI in China
• A new development strategy in China?
2
2
China’s Open Door Policy
• Deng Xiaoping committed China to adopting
policies which promote foreign trade and
economic investment.
• Special Economic Zones (SEZs):
– Shenzhen, Zhuhai, Shantou and Xiamen;
– Later on: Hainan Island
• Many coastal cities designated as opened areas:
– Shanghai, Tianjin, Guangzhou and Nanjing.
• No Open Door Policy, no Modern China
3
Source: adapted from UNCTAD,WIR,2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
90 000
80 000
70 000
60 000
50 000
40 000
30 000
20 000
10 000
-
1978
US$ Millions
Strong growth of China’s Inward FDI
Flows(US$ million)
4
China annual FDI Inflows(US$ b.) and %
share of global FDI inflows, 1990-2007
Why the % share decline?
90
14.0
80
12.0
70
US$ billion
50
8.0
40
6.0
% global share
10.0
60
China inflows
China % share
30
4.0
20
2.0
10
0
0.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: adapted from UNCTAD,WIR,2008
5
Indices of annual growth of World FDI
inflows and China FDI inflows(1990=100)
Source: adapted from UNCTAD,WIR,2008
6
Trend growth rates(% p.a.) for China and
other country/groups, 1994-2007
Middle East
CIS
India
Africa
Hong Kong
European Union
World average
North America
C& S America
China
SE Asia
28.9
24.3
22.6
16.9
14.7
14.6
% p.a.
12.3
9.0
China had a below world average
8.9
growth of FDI inflows
6.7
5.5
Source: adapted from UNCTAD,WIR,2008
7
18.0
18.0
16.0
16.0
14.0
14.0
12.0
12.0
10.0
10.0
8.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0 The importance of Inward FDI
For China’s economy has relatively
-
19
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
07
-
Source: adapted from UNCTAD,WIR,2008
% GDP
% GFCF
Share of China’s FDI inflows and Inward FDI stock
in China’s Gross Fixed Capital Formation(GFCF)
and GDP, %, 1990-2007
FDI inflows/GFCF
Inward FDI Stock /GDP
declined
8
Comparative Inward FDI Stock as a % of GDP,
selected economies,1990,2007
60
50
40
30
20
10
0
Australia
US
EU
Denmark
China
New
Zealand
1990
23.2
6.8
10.6
6.8
5.1
18.1
2007
34.4
15.1
40.9
47.1
10.1
55.6
Source: adapted from UNCTAD,WIR,2008
9
US dollar/1 Yuan (average annual rates)
The issue of China’s hard currency reserves
(US$ 2000 billion!!!)
0.2
0.18
0.16
US$/1 Yuan
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02 0 03 0 04 0 05 0 06 0 07
9
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
Source: adapted from USDA data
10
100
50000
90
45000
80
40000
70
35000
60
30000
50
25000
40
20000
30
15000
20
10000
10
5000
0
Number of Projects
US$Billion
Utilized FDI value(US$ Billion) and Number of
FDI Projects, 1999-2008
Utilized FDI(US$ B)
No. of Projects
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: adapted from PRC Ministry of Commerce(MOFCOM)
11
Top 10 FDI Investors in China 1979-88,% share,
(Total US$ 28.4 B.)
70.8
H.Kong/Macao
8.5
United States
Japan
4.7
Singapore
1.9
West Germ any
1.1
%
Spain
0.7
The Netherlands
0.6
United Kingdom
0.6
Canada
0.6
France
0.5
Source: adapted from US China Business Council/PRC Ministry of Commerce(MOFCOM)
l
12
Top 10 FDI Investors in China in 2008,% share,
(Total US$92.4)
44.4
Hong Kong
17.3
British Virgin Islands
4.8
Singapore
Japan
4.0
Caym an Islands
3.5
%
South Korea
3.4
United States
3.1
Western Sam oa
2.8
Taiw an
2.1
Mauritius
1.6
Source: adapted from US China Business Council/PRC Ministry of Commerce(MOFCOM
13
Top 10 Foreign Investors in China, %
share, 1979-88 and 2008
2008: US$ 92.4 B
1979-88:US$ 28.4B.
8.5
United States
Japan
%
70.8
H.Kong/Macao
44.4
Hong Kong
17.3
British Virgin Islands
4.7
Singapore
4.8
Japan
4.0
Cayman Islands
3.5
South Korea
3.4
United States
3.1
Western Samoa
2.8
Canada 0.6
Taiwan
2.1
France 0.5
Mauritius
1.6
Singapore
1.9
West Germany 1.1
%
Spain 0.7
The Netherlands 0.6
United Kingdom 0.6
Source: adapted from US China Business Council/PRC Ministry of Commerce(MOFCOM
%
14
China’s FDI inflows by type of vehicle,
%, 2006,2008
80
70
60
50
% of Total 40
30
20
10
0
EJVs
CJVs
WFOEs
FISVs
2006
23
3
74
1
2008
19
2
78
1
EJVs = equity joint ventures; CJVs = cooperative joint ventures;
WFOEs = wholly foreign-owned enterprises; FISV=Foreign invested shareholding
ventures. See Glossary at the end of this file.
15
Sectoral distribution of China’s FDI
Inflows,%,2007
Other
22%
Wholesale&Retail
2%
Transport,
storage&post
6%
See comparative shares for
Developing countries and the World
on the next slide
Manufacturing
53%
Leasing&Business
services
6%
Real Estate
11%
Source: adapted from US-China Business Council, February 2008
16
Sectoral distribution of FDI inflows(%) for developing
countries and the world,
1989/91 and 2004/06
60
50
40
% of total 30
20
10
0
1989/91
2004/06
1989/91
Developing
2004/06
World
Primary
11.2
9.6
6.9
13.2
Manufacturing
46.5
34
34.2
22.9
Services
30.7
52.8
50.4
55.8
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Growing signs of economic nationalism
• The unified company tax(25%)
• USBC: A more restrictive view of FDI inflows
– Emphasis on ‘quality’ foreign investment
– Best use of of foreign investment to boost domestic
innovation
– Antimonopoly Law:some mergers and acquisitions could
be reviewed and halted in the name of national security
• Ex-EU Trade commissioner, P. Mandelson noted:
– an “unpredictable” policy for mergers and acquisitions and
– barriers to market entry, including capital requirements,
licensing and forced joint ventures.
– “China appears to have put out the mat for foreign
investment, but the door is still half closed.In some cases it
appears to be swinging shut.”
18
Annual Australian Outward FDI stock (A$M)in China,
and China’s % share of Australian total, 1994-2007
1800
1600
0.6
0.5
1200
1000
800
600
400
200
0.3
A$M
%
0.2
0.1
0
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
0
0.4
% share
A$ Million
1400
Source: adapted from ABS 53520 - International Investment Position,
Australia: Supplementary Statistics, 2007
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The trade-investment discrepancy
• Ma, Yang and Zhang(2008:70-86), found that,
while China was Australia's third largest
trading partner in 2005, it was only the twentyfirst biggest investment destination.
• Similarly, Australia was China's ninth largest
trading partner and yet the seventeenth largest
investor.
• Why the discrepancy?
20
China and the Financial crisis:
Quarterly Real GDP Growth,2008
(year/year % change)
12
10
8
% y/y
6
4
2
0
% y/y change
Q1 08
Q2 08
Q3 08
Q4 08
10.6
10.1
9
6.8
Source: adapted from FT China Confidential of 19/03/09
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China’s Premier at the March 2009 Parliament
meeting; Crisis measures
• China will have in 2009 an annual growth target of 8% with a
CPI inflation rate forecast at 4% for the full year
– Monetary and fiscal stimulus to spur growth
– Increase in social security spending by 17.6% from last year
– Tax incentives and fiscal measures to support the export sector,
while keeping the exchange rate “basically stable”
– Fresh policies to spur auto consumption
– Increased spending for the rural economy and agricultural sector.
– Will spend RMB 43 bn on constructing low-rent housing in 2009
and expand access to credit for the buyers of small and mediumsized apartments
• Shift in development strategy?
– From export-based growth to domestic economy-based growth
Source:adapted from Financial Times, China Confidential 19/03/09
22
References
• The US-China Business Council, 2008 and 2009
http://www.uschina.org/statistics/fdi_cumulative.html
• Ma Z, Yang R, and Zhang Y., 2008, ‘Australia's direct
investment in China: trends and determinants’ in
Economic Papers, Economic Society of Australia, 01
March, 2008
http://www.accessmylibrary.com/coms2/summary_0286
-34119079_ITM ( viewed at 10 February, 2009)
• UNCTAD, World Investment Report 2008
– www.unctad.org/wir
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Foreign Direct Investment
FDI glossary
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Foreign direct investment (FDI)
• An investment involving management control of a
resident entity in one economy (the host country),
by an enterprise in another economy (the home
country).
• FDI involves a long-term relationship reflecting an
investor’s lasting interest in a foreign entity. The
investor (the parent firm) and the foreign
entity/asset (the ‘affiliate’— ‘subsidiary’.
25
FDI Concepts
• Flow: amount of FDI over a period of time
(one year)
• Stock: total accumulated value of foreign
owned assets at a given point in time.
.
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Other FDI concepts
• FDI flows (outflows, inflows)
• FDI stock (outward, inward)
• ‘Greenfield’ investment = new investment made up
by setting up a new affiliate overseas
• Cross border M & As (mergers and acquisitions) =
acquisition of more than 10% equity share of an
existing operation overseas
–
–
mergers = the combining of two or more firms
acquisition = take-over of an existing operation
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Equity joint ventures(EJVs)
• EJVs are the second most common manner in which
foreign companies enter the China market and the
preferred manner for cooperation where the Chinese
government and Chinese businesses are concerned.
Joint ventures are usually established to exploit the
market knowledge, preferential market treatment, and
manufacturing capability of the Chinese side along
with the technology, manufacturing know-how, and
marketing experience of the foreign partner.
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Cooperative Joint Venture(CJV)
• In a CJV, the parties involved may operate as separate
legal entities and bear liabilities independently rather
than as a single entity.
• A party (typically, but not always, the Chinese party) may
contribute non-cash intangibles in the form of
“cooperative conditions”. Such “cooperative conditions”
may consist of market access rights, rights to use
buildings or office space owned or leased by the party
that are not subject to clear valuation. In exchange for
such “cooperative conditions”, the party is entitled to
participate in the distributable earnings of the CJV.
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