Transcript Historical Reasons for China`s Government FDI

Historical Reasons for China’s
Government FDI Role
Oded Shenkar
Fisher College of Business
The Ohio State University
GDP per Capita: China and Western Europe
1-1998 A.D.
$ 2002
16000
Western Europe
8000
Western Europe
4000
2000
1000
575
China
1 200 400 600 800 1000 1200 1400 1600 1800 2000 Year
SOURCES: Maddison Angus (2001). The World Economy: A Millennial Perspective. Organization for Economic Cooperation
and Development. p.42; author’s calculations.
GDP in China
(1820-2001, Geary-Khamis dollars)
5000000
4500000
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
Source: Compiled from Maddison, A 2003, The World Economy-Historical Statistics
Imperial Footprints
+ Imperial Size
Ambitions
+ Bureaucrats Rule
+ Local Fiefdoms
+ Ideology & Practicality
+ Western Technology,
without Western Values
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
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.
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
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.
Reaching Out
• Learning to launch outward FDI
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
FDI Motivation of Chinese Firms (II)
Strategic and Managerial Motivations
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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
FDI Motivation of Chinese Firms (III)
Political Motivations
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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