China shifts outbound investment focus

In China, FDI policy has shifted from inbound to outbound investment. Furthermore, outbound investment is migrating up the value chain from resources through knowledge-based industries. China’s huge financial resources provide a sound foundation which needs to be supplemented with information and tools to assist Chinese
companies to make objective investment decisions.

Everyone is aware of the massive economic changes that have taken place in China over the last few decades. Focusing on the trade balance and the financial resources (estimated at over $2trn), many people assume that China’s rise is based on low-cost manufacturing capabilities supplemented by an essentially limitless supply of people. However, in reality China’s vision and aspirations are global, broad and achievable.

With its membership in the WTO, China became part of the global marketplace. The country now has 46 companies in the Fortune 500 – three in the top 10. Contradicting the view of China as a specialist in low-end manufacturing, the country has developed the world’s fastest supercomputer, the Tianhe-1A, which at 2.5-petaflops surpasses the Jaguar supercomputer in the USA.
 
It has become important for China to diversify, partially as a result of negative perceptions about trade imbalance and currency exchange rates, but also because of political ambitions. Chinese facilities, factories and distribution centres in all parts of the world will utilise knowledge from the approaches successfully taken by Japan and Korea.

It will mimic successful aspects of those approaches, while skipping those aspects that didn’t go well. Case in point: in response to external demands for Yen, Japan revalued. The trade imbalance did not change, but the Japanese economy entered a 10 year deflationary period. It is unlikely that China will follow this example.

Historically Chinese outbound investment has been aimed at securing natural resources, a situation that resulted in a substantial African presence. The focus is now changing. During the recent UNCTAD World Investment Forum 2010 in Xiamen, the Ministry of Commerce of the People’s Republic of China presented a plan and strategy for more diverse outbound investment.

The ministry released detailed economic reports in Chinese language about the investment environment of 22 countries. They also proposed Global-Arena.com to work with them on a “Global-Arena.cn” initiative. Managing outbound FDI is very different from managing inbound FDI. Moreover, as China has changed, the government wants to diversify its FDI by complementing State Owned Enterprises’ FDI activities with Privately Owned Enterprises’ foreign investments.

As a global leader in online business location information, providing innovative online analytics tools to support objective FDI allocation decisions, Global-Arena.com is uniquely qualified to assist with China’s outbound FDI strategy. Global-Arena.cn will bring an enormous amount of information (in Chinese) to the Chinese outbound FDI market.

In addition to Global-Arena’s patented ranking technology, which supports evidence-based location decisions, Global-Arena.cn will provide essential information (cost, taxation, legal, education, infrastructure) to ensure successful implementation of the FDI strategy. Companies and governments outside of China which are increasingly interested in entering the Chinese market, will benefit through mirrored capability available on the Global-Arena.com website.

Having the financial resources to invest is adequate but not sufficient to ensure global success. Local FDI knowledge and access to information that allows objective and evidence-based decisions is equally important.

China is ambitious – but it is also realistic and practical. Most of all, China has a unique long term planning capability combined with an unparalleled sense of focus and patience. China wants to become the world economic leader. Chinese FDI is instrumental to that ambition.

Dr Dan Martin Zürich is Chief Innovation Officer at Global Arena