Chinese overseas investment

Special attention should be paid to the fact that according to the survey presented in "China Goes Global 2013", the ODI pattern without the inclusion of big enterprises is quite different from the general one, based on the Heritage Foundation data - the predominant area here is manufacturing (77% of the total number. Again, the data on two different scales vary significantly, which is a very notable finding itself. Along with the level of enterprises, it may also be related to the changing structure of ODI in the recent years, where the share of resources is becoming less significant.

Figure 6: Distribution of ODI by Sector (survey-based data)

Source: China Goes Global 2013 - Survey of Outward Direct Investment Intentions of Chinese Companies

c. Aggregate figures on the Chinese ODI distribution by region

The distribution of Chinese ODI by region is comparatively equal and without any country or region, which holds the biggest share - at least according to the Heritage Foundation data. One interesting generalization was made by Wang B. and Huang Y. based on their own data stating that Chinese companies in developed countries are prone to invest in sectors where they are not strong so that it could be possible to acquire the lacking capabilities to be stronger domestically, while in developing countries they purely seeking for resources (Wang, Huang, 2011, p. 21). Nevertheless, despite the feasibility of this statement, the overall picture seems to be much more complicated by different factors like possible revenues gained from foreign markets in developed and specific created assets in developing countries.

Figure 7: Distribution of ODI by Region (values are given in billion US dollars)

Source: The Heritage Foundation - China's Steady Global Investment: American Choices. Derek Scissors

But it should be noted, that there is significant capital flow to so-called financial havens like Hong Kong, Macau, British Virgin Islands or Cayman Islands. Many Chinese companies, including State-owned enterprises (SOEs), invest there in order to avoid governmental control over their funds or to get additional preferences, and round-tripping is quite pervasive. Thus, according to Yu A. L. and Li K. the position of Hong Kong in the ODI of Chinese companies is in fact underestimated, while this place is the earliest platform of foreign-directed investments. Furthermore, many Chinese companies implemented the strategy of dealing with Hong Kong as a window to the world, making use of experiences there and learning Western skills in management, trade and technology (Yu, Li, 2012, p. 17-18).

It is reflected in the dataset composed by MOFCOM - in both distribution by region and by sector finance-related investments in Asia prevail For more detailed information see ’†Ќ‘¶ФНвН¶ЧКєПЧч·ўХ№±Ёёж (“Report on Development of China's Outward Investment and Economic Cooperation”) // ’†»ЄИЛГс№ІєН№ъЙМОсІї (“Ministry of Commerce of the People's Republic of China”)ЃB- 2012.. Accordingly, Asia and Latin America (though lagging far behind the former) are the major recipients of Chinese ODI, but regarding the fact these investments are just temporal and actually not stable, long-term investments, it seems that these data should considered carefully, like all the data related to Chinese ODI. The importance of Asia actually may be also explained (besides tax havens) by geographical and cultural proximity, as well as by the fact Chinese companies have ample experience in operating in institutionally undeveloped countries, and many Asian states in their institutional development are comparable with China. It is also the case for African countries, which enjoy huge amounts of investment in their economies being backward institutionally and politically (Morck et al., 2008; ‰¤ (Wang), ‘v (Song), 2013). Also the fact that unlike Heritage Foundation data the projects under the threshold of 100 million US dollars are included should be kept in mind.

Figure 8: Distribution of ODI by Sector (values are given in billion US dollars; the data is for the year 2010)

Source: MOFCOM - 2010 Statistical Bulletin of China's Outward Foreign Direct Investment



This trend seems to be quite persistent as there is no radical changes in the recent years reflected by the MOFCOM data - in the 2012 paper it is shown that 60.9% of ODI for the year 2011 were headed to Asia ’†Ќ‘¶ФНвН¶ЧКєПЧч·ўХ№±Ёёж (“Report on Development of China's Outward Investment and Economic Cooperation”) // ’†»ЄИЛГс№ІєН№ъЙМОсІї (“Ministry of Commerce of the People's Republic of China”)ЃB- 2012..

d. Motivations of Chinese companies to go abroad

There is relatively common understanding among scholars about the motivations of Chinese ODI. For instance, Wang B. notes in his article that there are four of them (Wang, 2012, p. 159-161) It is noteworthy that diversification-seeking motive is noted by some authors as a separate point (e.g. OECD Investment Policy Reviews: China. - 2008. P. 100-101)., which are pointed out by many other analysts as well (e.g. Buckley et al., 2008; Amighini et al., 2011).

1) Market-seeking ODI (to expand or secure markets overseas);

2) Resource-seeking ODI (to exploit natural resources of foreign countries);

3) Strategic assets-seeking ODI (to obtain new knowledge, technologies, managerial practices, supply chains, etc.);

4) Efficiency-seeking ODI (to lower production costs).

Figure 9: Percentage of Different Motivations for the Year 2010

Percentage of different motivations for the year 2010
	By number	By value
	Number	Total share	Value (US$ billion)	Total share
Market-seeking	87	30%	28.2	28%
Resource-seeking	121	41%	51.0	51%
Strategic assets-seeking	78	27%	20.0	20%
Efficiency-seeking	7	2%	0.2	0%

Source: Wang, B. Upgrading China's Economy through Outward Foreign Direct Investment. Rebalancing and Sustaining Growth in China, - 2012. P. 162

It is noteworthy that this author also calculated the shares of each motivation in the total number of ODI and his results are represented in the chart above. These figures help us understand the main pattern of Chinese ODI and measure different motivations, their importance in the whole process of investment development. It is well known that resource-seeking aspect have been extremely important for Chinese companies, as with the overall economic development of China they consume more and more energy, metals and other raw materials.

Hence, it is not surprisingly that this motive is still prevalent. But at the same time the net value of other reasons to invest abroad has risen as well, because the very development of the Chinese economy, its globalization requires companies to improve themselves in order to become more competitive on domestic and even international market. That is why the shares of market-seeking and strategic-seeking motives are also significant, though efficiency-seeking factor is not.

In the relation to the point above Child and Rodrigues list various drivers and facilitators of internationalization by Chinese firms, which concern companies not engaged in resource-seeking international projects.

As it can be seen from the table both internal and external factors are influencing the decision-making process of Chinese companies, namely state policies, internal pressure and potential opportunities of internationalization.

Figure 10: Drivers and Facilitators of Internationalization

Drivers	Facilitators
Hazard of relying on a highly competitive domestic market, with low margins	Strong governmental support for globalization, especially financial backing and tolerance of domestic moves (such as M&A) that build corporate strength
Opportunities to export based on domestic cost advantages	Ability to reach a favorable accommodation with government, so as to combine support with strategic freedom to act entrepreneurially, raise capital abroad, etc.
Potential to complement domestic cost advantages with differentiation advantages acquired abroad	Access to state-supported scientific and technical research
Need to secure and develop advanced technology and internationally recognized brands	Willingness of foreign firms to sell or share international-standard technology, know-how, and brands
Desire to gain entrepreneurial and managerial freedom

Source: Child J., Rodrigues S. B. The Internationalization of Chinese Firms: A Case for Theoretical Extension? // Management and Organization Review. Vol. 1, No. 3. P. 399

e. Entry modes and behavior of internationalizing Chinese companies

With the recent development of Chinese ODI and emergence of Chinese companies on the global scale there have been some changes to happen in their entry modes and behavior.

Generally, there are three main types of internationalization undertaken by Chinese companies: investment in new assets (greenfield investment), and in existing assets - whether cross-border M&A or joint ventures (Schьller, Turner, 2005, p. 6). On the early stage Chinese companies preferred joint ventures with foreign companies, being only partial owners without majority holding, due to the assets security reason. But since 1995 full ownership has become a widely used mode of Chinese ODI, which in fact manifested maturation of Chinese companies: first, government became more confident in managerial skills of enterprises and cancelled part of constraints imposed on them (state- and private-owned) to go abroad; second, with the outset of "Go Out" policy SOEs were provided with loans below market rates and improved access to hard currencies; third, with the growth of access to the global market the necessity to establish more wholly-owned subsidiaries has become evident (Buckley et al., 2008, p. 734-735). At the same time, some companies including private ones are employing international listing as an important channel to raise capital and to finance overseas expansion, as well as a tool to improve their international image (Hoong, Sun, 2006, p. 616).

The 2013 survey of sampled Chinese companies reflects the described trends, as it can be seen from the figure below.

Figure 11: Entry Modes of Existing ODI Based on the Survey Results

Source: China Goes Global 2013 - Survey of Outward Direct Investment Intentions of Chinese Companies

As for the changes in the behavior of Chinese companies abroad, some analysts noted, that they were forced to adhere to international standards, which generally led to certain improvements in socio-economic sphere (Moran, et al., 2012). Also, unlike Japanese companies in the past, Chinese companies are inclined to maintain the staff of merged companies, not to discharge them in order to hire Chinese managers or technicians (Rein, 2012, p. 162-163). It complies with the overall strive to obtain new managerial practices and innovations.

f. Positive and negative factors to internationalize and the level of satisfaction with existing ODI

Besides motivations, other factors may also play a significant role in decision making on the enterprise level. For example, according to the survey of Chinese MNEs presented in "China Goes Global" the most positive factors are "Going Global" policy and relevant favorable supports It is noteworthy that besides domestic government support, there large Chinese communities overseas, which provide with necessary information, assistance and possibilities to reduce transaction costs (Child, Rodrigues, p. 386)., capital availability, market potential of target countries, natural resources of target countries and advanced technologies and brands. On the contrary, among negative factors limited knowledge of Chinese brands, financing difficulty, lack of qualified managers, absence of cutting edge of products and technologies China Goes Global 2011 - Survey of Outward Direct Investment Intentions of Chinese Companies. P. 8-9..

The same survey also shows very interesting information about the level of small and medium enterprises (SMEs) satisfaction, which complies with the general trend of the overall desire to go abroad among companies capable doing so.

Figure 12: Level of Satisfaction with Existing ODI of SMEs (the data is for the year 2010)

Source: China Goes Global 2011 - Survey of Outward Direct Investment Intentions of Chinese Companies

The very situation in the global economy may also play a significant role in whether boosting or impeding Chinese companies from investing abroad, as it has happened in 2008 during the global financial crisis. At that time some Chinese companies actually made use of this opportunity and bought up a row of troubled Western companies, which were on the brink of bankruptcy or had other financial problems (Ћь (Zhou), 2009, p. 18-21). If it were not the crisis, one might surely assume that such a success could not be possible, as it takes much resources to acquire well-established Western enterprises.

g. Ownership structure of internationalizing Chinese companies

Ownership structure of Chinese companies investing abroad is generally typical for a developing economy, and the bulk of them (in terms of ODI stock) are represented by large state-owned enterprises For example resource companies like SINOPEC, CNOOC, or telecommunication companies like China Telecom Corporation, etc.. Their presence is mostly observable in the projects related to resources, strategic assets and diversification, and some ODI in these fields can be considered as investments motivated by national rather than commercial interests. Other enterprises include collective enterprises, which are only partially owned by the government, and private companies, where there is no government-owned equities.

Figure 13: Share of SOEs in the Total Number of Companies Invested Abroad

Source: Statistical Bulletin of China's Outward Foreign Direct Investment and the calculation made by Wang B. and Huang Y. It is noteworthy, that in the distribution by the number of non-SOEs projects is nevertheless prevailing, which means that SOE primarily undertake only large ones (Wang and Huang, 2012).

A bit different figures are reflected by MOFCOM dataset for the year 2011, where the share of SOEs is 55.1%, while that of other kind of enterprises is 44.9% - including 26.4% share taken by limited liability companies in it ’†Ќ‘¶ФНвН¶ЧКєПЧч·ўХ№±Ёёж (“Report on Development of China's Outward Investment and Economic Cooperation”) // ’†»ЄИЛГс№ІєН№ъЙМОсІї (“Ministry of Commerce of the People's Republic of China”)ЃB- 2012. P. 15.. It can be explained both by possible discrepancies in the related data and by the deepening process of private companies internationalization.

As it is seen from the charts, the share of SOEs is gradually decreasing and the share of other enterprises is gradually increasing. Generally speaking, their net weight in the Chinese economy is shrinking due to different reasons like overall ineffectiveness, and private-owned enterprises are constantly substituting them (Xu G., 2010). But this process is likely to be quite long and only its initial stage can be seen so far. At the same time, the difference between locally administered SOEs and centrally-administered SOEs should be kept in mind - the latter are far bigger, their projects much larger, they receive more support from the government and have less competition, being surely protected (Wang B., Huang Y., 2012).

It is noteworthy that some Chinese big enterprises being partially (but not totally) owned by the state still retain their autonomy in decision-making, while having additional advantages in international operations provided by the state. Such companies as Haier, CIMC and Lenovo are good examples of it - they were given the access to privileged financial loans, domestic government and educational markets and to state sources of scientific and technical research. Lenovo is even classified as a "state-owned non-governmental managed enterprise" (Child, Rodrigues, 2005, p. 400). Obviously, it makes them much more effective and reactive in their interaction with foreign peers.

A recent survey of a representative set of Chinese companies shows a different picture due to the absence of large companies and shows that the share of the private sector in the general pattern is not that insignificant. It is evident that the smaller the scale of investment, the more non-SOEs is engaged in foreign investment.



Figure 14: Proportion of SOEs and non-SOEs in ODI (based on the survey results, value on x-axis are given in million UD dollars)

Source: China Goes Global 2013 - Survey of Outward Direct Investment Intentions of Chinese Companies

It is also noteworthy in this context, that SOEs' investments being largely supported by the government are generally directed to resources in poor countries with poor institutions and unstable political systems, while non-SOEs (most of them are small in size) are more interested in technology-related sectors in developed countries (OECD Investment Policy Reviews: China, 2008; Amighini A. A., et al., 2013). This difference is very important being a distinctive feature of the Chinese ODI pattern.

h. Existing problems related to the internationalization of Chinese companies

In the move to internationalize different problems and impediments have emerged for Chinese firms. They were noted by different authors, are multidimensional and related to the ownership structure of Chinese companies, their capabilities, political system in this country, etc.

For example, general rigidity and lack of experience are noted in the related literature, which includes strict hierarchy, conformism, reluctance to operate abroad (but some of them are compelled by the government to do so), undeveloped mid-carrier training, etc. He concludes that Chinese companies are still new kids on the block, and it will take time to overcome all these problems (Shambaugh, 2012; Ћь (Zhou), 2009).

Some analysts scrutinize another negative factor - the relationship between the government and companies in China, - which is probably even more significant for the future of "Go Out policy" and the overall economic development. The main point here is that there is the lack of transparency of SOEs, and foreign private companies as well as foreign governments are reluctant to cooperate with them (Cui J., Jiang F., 2012; —› (Li), ХЕ (Zhang), 2012). For example, Huawei, which is believed to be a private enterprise, was claimed by the US government as a national threat, and was even blocked to employ some investment deal, being considered closely connected with the Chinese People's Liberation Army.

Speaking about SOEs it is worth to pay attention to the overall ineffectiveness of Chinese SOEs - their flawed corporate governance, distorted capital allocation, lesser pursuit of profitability (Morck et al., 2008). Therefore, their investments may potentially cause huge losses. Incidentally, that is why many authors note that, it is mostly Chinese private companies, who can lead the process of further globalization of national economy (Cai, 2012; Huang, 2012).

Another point is related to the present vagueness of Chinese companies and their investments having close connections with tax havens like Hong Kong, Macao, Virgin Islands and Cayman Islands - some enterprises use them to avoid state control over capital flow and overseas investment, to implement round-tripping of capital (according to some estimations 25% to 50 % of inflowing FDI are round-tripped) (Yu, Li, 2012, p. 8-15). Yu and Li even assumed, that a significant portion of Chinese overseas investments have been from the very beginning connected to capital flight, irregularities, corruption (Yu, Li, 2012, p. 8-15). This problem is closely connected with the fact, noted by many authors, that there is no perfect data on Chinese ODI, and considerable omissions may take place - for example the Heritage Foundation has collected information only about investments exceeding 100 million dollars threshold (e.g. Hoong, Sun, 2006; Buckley et al., 2008; Yu, Li, 2012).

In addition, many foreign companies, especially American ones, are suspicious about the future behavior of their Chinese counterparts, assuming that they may for example violate intellectual property rights (Wang B., Huang Y., 2012), which is probably partially connected with weak institutional base in China.

i. Conclusion

In this chapter general trends of Chinese ODI development were examined. It seems clear that this process has upward dynamic and is becoming more and more prominent on the global scale. This new phenomenon in the evolution of the Chinese economy can probably be described as a further stage of the overall growth. One the one hand, at present Chinese companies are becoming more and more capable to compete with foreign enterprises and to absorb managerial and technological knowledge and skills. One the other hand, China desperately needs resources and innovative technologies, as well as new markets. That is why the government of this country is much more confident and active in boosting this process than before, while Chinese enterprises themselves understand the necessity to go abroad. On this base it is possible to predict that Chinese ODI will be constantly rising in future, as many authors do (e.g. Wolf et al., 2011; He, Lyles, 2008).

At the same time, the priorities given to different sectors are not equal, as it has been shown above, considering the fact that the biggest part of capital was invested in resource sector. This trend is actually formed by SOEs, which are the main participants of the foreign investment process. Nonetheless, many analysts are predicting that the focus of Chinese ODI will shift to manufacturing sector and private companies will become dominant (e.g. Buckley, et al., 2008; Cheng, Qian, 2009; Wang, Huang, 2012; Berger, Berkofsky, 2009; ›L (Yao), —› (Li), 2011). MOFCOM data as well as "China Goes Global" datasets on Chinese companies' ODI structure actually prove this point. Some analysts even propose the "China's model" to explain the dynamics of Chinese ODI, which can be considered as a special case in the general theory of FDI, where investments in strategic assets and resources are prevailing and based on the political agenda (Wang, Huang, 2011).

But there are obstacles and difficulties, which may impede Chinese companies on their way of internationalization. They can be generalized to two major points: enterprises inexperience (flawed corporate governance, losses, etc.) and government inexperience (high level of red tape in approving companies ODI, close relations with some enterprises, like Huawei, etc.).

On sum, there is a long road for Chinese companies to become a major investor on the global scale - its ODI still can hardly be comparable with investments from the USA and Europe (as it is shown on the figures below). It seems, that today global ambitions of many Chinese enterprises in this area cannot be realized, as only few of them are recognized internationally, though the general trend of ODI development allows assuming, that in the future more and more companies will undertake internationalization and play more significant role on the global scale.

Figure 15: ODI Stock of the USA, Japan and China (values on y-axis are given in billion US dollars)

Source: UNCTAD - Foreign Direct Investment Statistics

4. State policies related to outward investment

It seems that besides domestic market pressures and potential opportunities of globalization there is something equally or even more significant for the ongoing trend of domestic companies' internationalization - political dimension, noted by Wang B. and a number of other analysts (Wang B., 2012; Voss H., 2007; Child R., Rodrigues B. S., 2005). In fact, since the outset of the Reform Era in 1978 the Chinese government understood the importance of ODI for national economic development and tried to encourage it, though in the 1980-s and the 1990-s it was considerably constrained, due to the government fears of concurrent detrimental effects like substitution of domestic investments and currency outflow (Buckley et al., 2008, p. 721).

a. State agencies related to outward investment

There are several agencies responsible for foreign operations of Chinese enterprises. First, State Council (Ќ‘ОсФє), which is China's executive organ, drafts and develops legal base, coordinates national economic development, foreign relations and concludes bilateral treaties. Economic policies including liberalization measures should be also ratified by this agency. Second, State Administration for Foreign Exchange (»¶У­·ГОК№ъјТНв»г№ЬАнѕЦ) or SAFE controls the activities related to foreign exchange: reports the balance of payments; recommends foreign exchange policies to the People's Bank of China; supervises the transfer of foreign exchange out of and into China; manages China's foreign exchange reserves. Third, Ministry of Commerce (’†»ЄИЛГс№ІєН№ъЙМОсІї) or MOFCOM legally supervises Chinese non-financial ODI; is responsible for bilateral and multilateral negotiations on investment and trade treaties, as well as representation of China at different international economic organizations; ensures the accordance of China's economic and trade laws with the international conventions; coordinates foreign aid policy. Forth, People's Bank of China (’†Ќ‘ђl–ЇТшРР) is responsible for the overall institutions related to financial policies and foreign financial interactions, as well as for the supervision of foreign reserves. Fifth, National Development and Reform Commission (’†»ЄИЛГс№ІєН№ъ№ъјТ·ўХ№єНёДёпОЇФ±»б) or NDRCЃ@is the main state agency which controls the economic development and industrial policy. Being involved in the approval process of Chinese ODI it published guidelines for internationalizing Chinese companies concerning the provision of soft loans, while large-scale international projects should be necessarily approved by it. Sixth, China Securities Regulatory Commission (’†Ќ‘Ц¤ИЇја¶Ѕ№ЬАнОЇФ±»б) or CSRC controls security and futures markets approving and supervising Chinese companies' foreign stock and debts. Finally, State Asset Supervision and Administration Commission (Ќ‘ОсФє№ъУРЧКІъја¶Ѕ№ЬАнОЇФ±»б) or SASAC represent the Chinese government as the owner of and investor in non-financial SOEs. It is responsible for the competitiveness of these companies and approves all the foreign investments undertaken by them (Voss, 2007; Wenbin, Wilkes, 2011).

Wenbin and Wilkes give the percentages of different state bodies' participation shares in ODI-related policy-making. Despite the low share of State Council it should be considered that its decision have the most strategic importance.

Figure 16: State Agencies' Level of Participation in ODI-related Policies

Source: Wenbin H., Wilkes A. Analysis of China's Overseas Investment Policies. Center for International Forestry Research. - 2011. P. 3

Nevertheless, the responsibilities of different agencies do actually overlap and the boundaries between them are not clearly defined. That is one of the features of red tape so typical to China, when companies have to undergo numerous bureaucratic procedures in order to get approval in their foreign operations loosing time and resources on that.

b. Political promotion of internationalization

Voss proposes periodization of Chinese investment, pointing out five separate periods. In the first period (1979-1985) the ideas related to the outward investment were rather implicit since the 1970-s and any outflow of the capital was strictly controlled, so that only a limited number of domestic companies could internationalize legally. Joint venture as a form of internationalization was mostly promoted and it was necessary for such projects to suffice one of the following criteria: acquiring access to scarce natural resources; obtaining new technologies; boosting export potential of domestic companies; gaining new managerial capabilities. It actually caused illegal operation of some enterprises to circumvent such policies by establishing foreign affiliates abroad, where hard currency was kept outside the control of Chinese state agencies and could be freely used abroad. As a result, only a very restricted amount of Chinese capital flew to foreign countries during this period.

The second period (1986-1991) is characterized by new regulations, allowance for more SOEs to internationalize, international activities in mature industries were promoted, though they still had to undergo approval process, where their managerial and innovative capacities were evaluated, as well as joint venture partners. SAFE and MOFCOM refined regulations related to foreign exchange gained from operations abroad. Since this time overseas projects gained national strategic importance and therefore discounted loans were provided to selected companies.

The third period (1992-1998) is marked by the Deng Xiaoping's travel to Southern China in 1992 and subsequent overall liberalization of the Chinese economy. Being part of the economic development outward investment was actively encouraged by Jiang Zemin, then chairman of the Chinese Communist Party and subsequently by local authorities. Thus, more foreign exchange was allowed for internationalizing companies. But due to the defalcation of state-assets MOFCOM strengthened its control over it, which was also supported by SAFE. At the same time MOFCOM and NDRC were responsible for investment under the threshold of 30 million US dollars, while the State Council had to approve investment over this value.

The fourth stage (1999-2001) is marked by comparatively contradictory policies related to ODI. The Chinese government tried to order ODI projects, which were excessive and poorly administrated, while companies from the light industries were encouraged to undertake foreign investment. Under the auspices of MOFCOM the promotion to establish assembly plants overseas to support export was implemented, as well as 33 experimental SOEs were chosen to promote their outward investment in the most favorable export sectors (13 were in consumer electronics). Finally the initial stage of the "Go Out policy" (‘–Џo‹ЋХЅВФ) took place at this time, being manifested in 1999 "Opinion on encouraging companies to carry out overseas material processing and assembly" Ќ‘ОсФє°м№«МьЧЄ·ўНвѕ­ГіІїЎў№ъјТѕ­ГіОЇЎўІЖХюІї№ШУЪ№ДАшЖуТµїЄХ№ѕіНвґшБПјУ№¤Ч°ЕдТµОсТвјыµДНЁЦЄ (“Information about the Opinion on Encouraging Companies to Carry Out Overseas Material Processing and Assembly by the State Council Office given to the Ministry of Foreign Commerce, the State Economic, Trade Commission and Department of Finance”). and incorporated into the 10th Five-Year Plan and supported by the main leaders. Overall, the importance of internationalization became very evident and related policies were therefore intensified (Voss, 2007, p. 57-67).

The fifth stage (2002 onwards) is marked by the accession to the World Trade Organization (WTO), which dramatically changed the business environment for Chinese enterprises making them to confront increased competition from their foreign counterparts. The tangible promotion of ODI, in which SAFE, MOFCOM, NDRC and the State Council (though to a lesser degree) are the main participants, emerged with the final adoption of the "Go Out policy", which implies that Chinese companies must be participants of the global market, and there should be much more internationally competitive enterprises in this country. This idea was first clearly pronounced by Jiang Zemin in 1996, and then it was many times repeated by senior politicians as the core strategy of the future development (іВ(Chen), 2008). Being started as an experiment in 2003 with pilot reforms in five chosen coastal cities and provinces (Shanghai, Jiangsu, Zhejiang, Shandong, Guangdong) guided by MOFCOM, when companies from these areas were allowed investing in "non-sensitive" countries and regions this policy was further developed as the basis for the future reform of overseas investment (Wenbin, Wilkes, 2011, p. 11).

The rhetoric over the issue was therefore further intensified in the 11th and 12th Five Year Programs (Berger, Berkofsky, 2009, p. 4-5), and, generally speaking, Chinese companies have been encouraged to invest abroad by a set of various measures: government foreign exchange control for ODI has been relaxed by SAFE; approval and control authorities have been significantly decentralized (from the central to the local level) and requirements for companies have been simplified (e.g. feasibility study as a part of the documentation for application); in order to decrease the effect of the red tape a specific time limit has been imposed on the approval authority, as well as online application procedures have been introduced. Overall, the number of issued document has substantially increased to date - to more than 15 ODI-related policies per year (Wenbin, Wilkes, 2011).

Furthermore, MOFCOM has fulfilled liberalization of the overall control over internationalizing companies, allowing them to reinvest their overseas profits, the required deposit to guarantee remittance of ODI profit was cancelled, and the long-imposed quota of USD 5 billion per annum was abolished as well. Also different plans were formulated to provide interest-subsidized loans for ODI in priority sectors (natural resources, manufacturing and infrastructure projects, R&D projects, etc.) among with provision of financial services like risk assessment, risk control, investment insurance OECD Investment Policy Reviews: China. - 2008. P. 84-85.. In addition, MOFCOM provides information support in the form of investment demand data in host countries, opportunities for participation in business fairs, FDI policies in host countries, obstacles faced by other Chinese investors Detailed information is provided in’†Ќ‘¶ФНвН¶ЧКєПЧч·ўХ№±Ёёж (“Report on Development of China's Outward Investment and Economic Cooperation”) // ’†»ЄИЛГс№ІєН№ъЙМОсІї (“Ministry of Commerce of the People's Republic of China”)ЃB- 2012. P. 24-25. and it was even compiled in the "Guidelines for Investments in Overseas Countries" and "Guiding List for Investments in Overseas Countries' Industries", which is constantly adjusted to the current needs of the economy ¶ФНвН¶ЧК№ъ±рЃi’n‹жЃjЋw“м (“Guidelines for Investments in Overseas Countries (Regions)”); ¶ФНвН¶ЧК№ъ±рІъТµµјПтДїВј (“Guiding list for Investments in Overseas Countries' Industries”)..

Institutional base related to outward investments was adapted to the new policy, and a series of documents were adopted: "Provisions on the Examination and Approval of Enterprises to run Enterprises Abroad" (which encourages competitive enterprises to invest abroad and operate internationally), "Verification and Approval of Overseas Investment Projects Tentative Administrative Procedures", etc. (Berger, Berkofsky, 2009, p. 6-9). Detailed information can be found in ’†»ЄИЛГс№ІєН№ъ№ъјТ·ўХ№єНёДёпОЇФ±»б - ЉOЧКАыУГ (“National Development and Reform Committee - Use of Foreign Capital”). On the current stage for a company to invest abroad it is necessary to comply with two points - profitability and viability of a project and compliance with national interests OECD Investment Policy Reviews: China. - 2008. P. 93.. Thus this strategy is constantly evolving, new features are being added to it and new state agencies are participating like specialized supervisory bodies of financial institutions - the Chinese Insurance Regulatory Commission, or the so-called "green finance" policy geared to promote environmentally friendly outward investment. In general, Chinese companies have been urged to expand investments related to resources, foreign technologies and managerial know-how (Hoong, Sun, 2006, p. 620-623), and the role of the Chinese government has become rather facilitating than just approving and controlling, which used to be before, meaning that micro-control was replaced by macro-control mechanisms.

Besides the general reason to further develop China's economy, there are other motives pointed out by different analysts, considering the question why the Chinese government is active on this direction. For example, Daniel Rosen notes the desire of Beijing to further liberalize foreign currency flows (Rosen, 2012). Others also mark that too excessive foreign exchange stock is also one of the reasons to encourage SOEs and private companies to invest abroad (e.g. Cheung et al., 2009; OECD, 2008). Its large accumulation exerts certain pressure on the Chinese financial system, sharpens the necessity to revaluate yuan and increasing ODI is considered as a measure to mitigate these problems OECD Investment Policy Reviews: China. - 2008. P. 68..

c. Deficiencies of the current outward investment policies

It is important to note that despite recent developments in the sphere of the state regulation on the ODI process, still there are observable impediments to Chinese companies to internationalize - the 2005 survey of Chinese companies shows that 58% of the interviewed pointed out to the limitations of foreign exchange use, 44% - to the length of the application process, 35% - to the limited financial resources, 24% - to the costs of procedures and regulations and, finally, 17% - to the strict check on the source of funds OECD Investment Policy Reviews: China. - 2008. P. 90 .

These points are explicated by different analysts - the tight control on capital account of ODI and trading rights are still maintained, the overall approval process is nonetheless quite time-consuming, legal contradictions between the local and national levels are in place, the negative impact of a well-connected nomenclature is evident, while micro-control in the form of direct state intervention into the decision-making process of state and private companies nevertheless persists (Voss, 2007, p. 70-71). Moreover, big projects undertaken by huge enterprises are more likely to be supported, than those of SMEs, which makes the latter more vulnerable to the potential uncertainties related to international operations (›L (Yao), —› (Li), 2011, p. 138).

d. Conclusion

On balance, after the Mao era the understanding of the importance of outward investment has been becoming more and more evident for the Chinese leadership and the corresponding policies were adopted being constantly adjusted. The approach of the leadership to these issues was rather gradual and numerous attempts to order the ODI pattern were done. The main trend of this policy is the constant liberalization of the control over outward investment and shaping it in the way most favorable for the overall development of the Chinese economy. This is a very distinct point about the Chinese policies related to ODI, which distinguishes it from many other countries, where this process was more chaotic.

The considered Chinese policies proved to be quite effective and according to the survey "China Goes Global 2013: Survey of Outward Direct Investment Intentions of Chinese Companies" among the motives driving various companies to undertake foreign investment making use of "Go Out" policy is one of the most important, while the government support abroad is of the highest value in managing their OFDI risks. It means, that the policy undertaken by the government has its positive effects.

5. S&T infrastructure development

According to the development experience of many countries, the shift from sustained to sustainable economic growth is accomplished on comparatively high stages of development, when economy in general and domestic entities (e.g. companies) in particular are ready for that. Economy itself can't develop competitiveness, as basic S&T infrastructure is rather a public good, which should be provided by the state - it is especially the case for transitional economies being forced to catch up with more developed countries (Wamae W. 2006). The Chinese leadership fully recognizes the point, which is evident from its recent policy related to the promotion of technological improvement, as the core feature of the future development. Furthermore, it has direct correlation with Chinese ODI pattern, in many cases it is better to go abroad and procure necessary technologies, because S&T system in this country is not developed enough, and it will take decades for China to catch up with industrialized countries. That is why considering the situation in S&T sector is crucial for understanding the very future of technology overseas investments.

a. Brief prehistory of the science and technology (S&T) development policy

In fact, the policy, geared to promote domestic technological development, have already emerged on the early stages of the Reform Era. Initially, there was an experimental period followed by constructing consistent strategy and issue of the "Key Technologies R&D Program" in 1982, "Decision on the Reform of the Science and Technology system" in 1985, "National High-tech R&D Program (863 Program)" in 1986, the "Decision on Accelerating Scientific and Technological Progress" in 1995, the "Decision on Strengthening Technological Innovation and Developing High Technology and Realizing its Industrialization" in 1999 and finally the current "Decision on Implementing the Medium- and Long-term Strategic Plan for the Development of Science and Technology and Improving the Indigenous Innovation Capability" in 2006 OECD Reviews of Innovation Policy - China. - 2008. P. 381-382.. Obviously, the Chinese leadership even in the 1980-s has already understood the importance of improving science and technology and was trying to establish adequate policy related to it, taking into account the overall maturation of the China's economy.

b. The context of the current S&T development policy

Context is a crucial factor for amendment and adjustment of any development strategy including S&T. Being a developing country, China has extremely volatile socio-economic situation and changes are very frequent there. The analysts who conducted overview of the innovation policy of China under the auspices of the OECD underline six main factors for improving the general policy towards S&T development:

1. Social developments have lagged behind economic development;

2. Economic inequality was exacerbated between urban and rural areas, western and eastern regions and between different social groups;

3. Negative environmental externalities;

4. Job opportunities have lagged behind technological growth;

5. The manufacturing sector was primarily engaged into producing low value-added products;

6. Catch-up heavily relies on technologies developed in Western countries OECD Reviews of Innovation Policy - China. - 2008. P. 389..

All these factors along with the Chinese ambitions to become a global leader contributed to the further elaboration on the S&T sphere improvement.

c. Establishing a new S&T policy

The year 2006 became crucial in the policy regulation related to S&T development. First, Hu Jintao, the General Secretary of CCPCC, appeared at science conference this year and underscored the necessity to develop science and technology, to make technological breakthroughs, to intensify innovation development with Chinese characteristics and to meet current requirements for successful socio-economic development China outlines strategic tasks for building innovation-oriented country. - 2006.. Second, besides the "Decision on Implementing the Medium- and Long-term Strategic Plan for the Development of Science and Technology and Improving the Indigenous Innovation Capability" issued by the CCPCC (Chinese Communist Party Central Commission) and the State Council, another document was also pronounced by the State Council - "The Medium- and Long-term Strategic Plan for the Development of Science and Technology (2006-20)"Ќ‘‰Ж’†і¤ЖЪїЖС§єНјјКх·ўХ№№ж»®ёЩТЄЈЁ2006„Є2020”NЃj(“The Medium- and Long-term Strategic Plan for the Development of Science and Technology (2006-20)”). Other related official documents can be found on the website of the Ministry of Science and Technology of the Peoples' Republic of China.. These documents outlined the new policy, proclaimed by Hu Jintao more precisely, generalizing the previous experiences.

The general strategy dated 2006-2020 has several aims:

1. Strong improvement in indigenous innovation capability;

2. Advancing S&T capability to promote economic and social development and to safeguard national security;

3. Increasing the overall strength of basic science and frontier technology research;

4. Getting globally significant achievements in the sphere of science and technology;

5. Participation in international activities along with innovation-advanced countries in order to become a world S&T power by the middle of the 21st century.

According to these tasks there are certain steps to improve institutional base, to provide support to enterprises which are considered as main producers of innovation in future, to establish a modern research institute system, S&T management system, etc. OECD Reviews of Innovation Policy - China. - 2008. P. 389-390..

Besides, technological development has been considered as the core development strategy in Chinese Five-Year Plans, especially in the 11th (2006-2010) and the 12th (2011-2015). Specifically, in the current 12th Five-Year Plan there is a range of tasks to improve S&T development and innovation capability in general, as well as in certain sectors, which are specified in this document. In this context further improving of human resources has also become an urgent task. It is also noteworthy that attention paid to the development of power-efficient technologies in this five-year plan is immense, due to the high level of domestic energy consumption in this country, and further technological development outlined there is partly devoted to resolving this problem exactly Ќ‘‰Ж“Џ\€кЊЬ”‰ИЉw‹ZКх·ўХ№№ж»® (“11th Five-Year Plan” of the People's Republic of China - Outline of S&T development); Ќ‘‰Ж“Џ\“сЊЬ”‰ИЉw‹ZКх·ўХ№№ж»® ((“12th Five-Year Plan” of the People's Republic of China - Outline of S&T development)..

Chinese strategy is quite ambitious, as the leadership of this country is planning to achieve the following indicators by 2020: the ratio of gross expenditure on R&D to GDP should reach or exceed 2.5%, the share of S&T contribution to economic development should be at least equal to 60%, the degree of reliance on foreign technology should drop to 30%, and the number of references to Chinese scientific papers should be among top five internationally OECD Reviews of Innovation Policy - China. - 2008. P. 390..

d. Major trends in S&T infrastructure development

With the adoption of the new S&T development strategy the overall increase of growth in this sphere has become evident. For example, investment in R&D has been rising quickly, especially after 2006 (see figure 15), and China is actually approaching to the level of developed countries in this sense. The share of overall R&D expenditures in GDP has also become tangible - from 1.39% in 2006 to 1.84 in 2011 Source: ’†Ќ‘‰И‹ZНіјЖ (China's Science and Technology Statistics). - 2012..

Figure 17: Gross Domestic Expenditure on R&D (values are given in billion yuan in its current price)

Source: ’†Ќ‘‰И‹ZНіјЖ (China's Science and Technology Statistics). - 2012

Situation in the structure of R&D expenditures by sector of performance and by source of funds is even more interesting (see figures 16 and 17). The main actor in S&T investment and development is business sector (73,9%), which is followed by government sector, lagged far behind the former (21,7%).

Figure 18: R&D Expenditure by Source of Funds (the data is for the year 2012)

Source: ’†Ќ‘‰И‹ZНіјЖ (China's Science and Technology Statistics). - 2012

Figure 19: R&D Expenditure by Sector of Performance (the data is for the year 2012)

Source: ’†Ќ‘‰И‹ZНіјЖ (China's Science and Technology Statistics). - 2012



Trends in the human capital development are similar to that in R&D share both in the general trend and in the share of different parties. The main actor is business sector (75.2%), followed by the state (11%), higher education (10.4%) and others (3.4%).

Figure 20: R&D Personnel Increase

Source: ’†Ќ‘‰И‹ZНіјЖ (China's Science and Technology Statistics). - 2012

Figure 21: R&D Personnel Sector of Performance

Source: ’†Ќ‘‰И‹ZНіјЖ (China's Science and Technology Statistics). - 2012



Figure 22: R&D Personnel Type of Activity

Source: ’†Ќ‘‰И‹ZНіјЖ (China's Science and Technology Statistics). - 2012

The number of patents can also be considered as one of the indicators of technological development. As it is shown on the diagram below, innovation activity has been increasing, corresponding to the other trends in this area, and, again, it is primarily performed by business sector.

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