Tuesday, 19 October 2010


by Ken Davies, Columbia FDI Profiles, October 18, 2010

After opening its doors to foreign trade and investment in 1978, China has become the largest recipient of inward foreign direct investment (IFDI) among developing and transition economies. The early policy of investment attraction by means of fiscal incentives and special economic zones has been relaxed now that many - though still not all - operating environment deficiencies have been effectively addressed and strong domestic enterprises have developed. While China remains the developing world’s favorite investment destination, the government is adopting a more selective approach that may result in slower IFDI growth. Although the global crisis reduced FDI inflows to China, this impact was lower than in many other FDI destinations, and flows have recovered considerably.

by Ken Davies, Columbia FDI Profiles, October 18, 2010

Since 2000, China’s outward foreign direct investment (OFDI) has grown at an accelerating rate as a result of a switch in government policy to strong encouragement of Chinese enterprises to “go global.” The bulk of this investment has been into the primary and tertiary sectors, with relatively little so far going into manufacturing. Most has gone to Asia, but Chinese investment is now spreading throughout the world. The precise geographical distribution is veiled, as much of it passes through tax havens. The Government has been slow to tackle administrative obstacles to Chinese companies wishing to invest abroad, but has recently begun to relax them. The global crisis has presented opportunities for Chinese multinationals, which were less seriously affected than their counterparts in the developed world, to raise their stake in the world economy.
by Karl P. Sauvant and Ken Davies, Columbia FDI Perspectives No. 30, October 18, 2010

A revaluation of the Chinese yuan would affect the country’s inward and outward FDI, not just its exports and imports. The impact on FDI inflows to China would be both positive and negative. On the other hand, revaluation is likely to provide a strong boost to overseas investments by China’s multinationals, which have been rising rapidly in recent years. Suspicions that China’s outward FDI is politically motivated are not so far borne out by systematic evidence. The rest of the world should learn how to benefit from this investment, not try to raise protectionist barriers against it.