Chinese overseas investment

Figure 23: Number of Granted Patents (the data is for the year 2012)

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



Generally speaking, the overall growth rate of the Chinese S&T system is fast and the main engine here is business sector, which is encouraged by the government. There are positive trends in total R&D expenditure, human resources development and research activities.

e. Problems and disparities in the S&T system development

Chinese system of innovation has a short history, and it is of little wonder that this system is not perfect. OECD analysts primarily point out the following basic deficiencies:

1. Much "D" than "R" in R&D - more that 70% of investments are devoted to experimental development, while only one-quarter corresponds to basic and applied researches;

2. Foreign companies in China produce 90% of high-technology export, and Chinese high-tech companies are far less innovative, than their counterparts in advanced economies;

3. The share of foreign companies in the total number of patents is high;

4. The innovation capability of domestic companies lag behind the investment in R&D;

5. The number of researches per thousand employment is low;

6. There are huge regional disparities in S&T development OECD Reviews of Innovation Policy - China. - 2008. P. 133 // http://www.oecd.org/innovation/inno/oecdreviewsofinnovationpolicy.htm..

g. Overall energy consumption and related policies

The issues related to energy effectiveness and sustainability of economic development are becoming more and more urgent for China and special attention is paid to them in the context of the general S&T infrastructure. This country is notorious for its large carbon dioxide emissions, as well as for other environmental problems. In order to cope with them, certain initiatives have been implemented since the outset of the Reform Era, and the aim to reduce energy use per unit of GDP was pronounced. It has become especially urgent since 2001, when this figure started to increase unlike the previous decreasing trend. Thus the task to reduce energy intensity by 20% up to 2010 was adopted in 2005 by the Chinese leadership (Zhou, et al., 2010, p. 2-5).

On the charts below total energy consumption and energy intensity of GDP are shown. Despite the rising trend of energy consumption in China, which can be explained by rising demands of manufacturing sector, consumers, etc., the energy intensity on the contrary has decreasing trend (see figures 19 and 20). It can be considered as the outcome of intensive government efforts to mitigate environmental problems related to excessive pollution. As it can be seen, these efforts are quite successful and the trend continues to be downward.

Figure 24: Total Energy Consumption in China (values are given in Mtoe)

Source: Global Energy Statistical Yearbook. - 2013

Figure 25: Energy Intensity of GDP in China (values are given in koe/$05p)

Source: Global Energy Statistical Yearbook. - 2013

The year 2005 turned out to be a milestone for the government policy dealing with environmental issues and a new set of measures did emerge. First, in 2004 the "Medium and Long-Term Plan for Energy Conservation" was issued and it set specific targets to cope with rising energy intensity. The "ten key projects" from this plan later were incorporated into the 11th Five Year Plan (Zhou, et al., 2010, p. 2-5). In fact, the 11th Five Year Plan itself has become a very important step in the decision-making related to mitigating environmental problems and improving energy effectiveness. There was a set of different measures aimed to achieve the task of 20% energy intensity decrease in this plan.

Second, a number of other initiatives were started - creation of new statistical indicator; pronouncing the "Decision on Strengthening Energy Conservation" in 2006, which, for example, restricts high energy-consuming projects; the "Comprehensive Work Plan for Energy Conservation", which is designed to strengthen the administration of the related policies already adopted and to initiate a set of new measures for reducing energy intensity; restructuring of energy agencies in the Central Government; adjustments in institutional and legal base; etc (Zhou, et al., 2010, p. 8-17) .

h. Energy-saving technologies

Among all these measures the significance of energy-saving technologies is very high. For example, one of the main functions of the National Energy Conservation Center is technology dissemination, and there is legal promotion of energy-saving technologies. But probably one of the most important measures in this context is the "China Energy Technology Policy Outline" issued in 2007, which is considered as a technical basis of the 11th Five Year Plan. It emphasizes R&D, demonstration and promotion of major energy-saving technologies, as well as elimination of and impediments on high energy-consuming technologies, processes and equipment (Zhou, et al., 2010, p. 8-17). The same line was continued in the 12th Five-Year Plan as well The China Greentech Report 2013..

This government promotion of energy-effective technologies goes beyond domestic sphere and is related to the international interactions of Chinese companies as well. The document of the highest importance in this sense is the "Guidelines for Environmental Protection in Foreign Investment and Cooperation". This is a set of recommendations, which deals with environmental effectiveness of Chinese ODI and underscores the overall importance of minimizing ecological harm, caused by Chinese companies abroad. There is a set of means to reach this goal among which clean production, reciprocal usage of materials, minimizing pollution are a significant part Џ¤ОсІї»·ѕі±Ј»¤Ії№ШУЪУЎ·ўЎ¶¶ФНвН¶ЧКєПЧч»·ѕі±Ј»¤ЦёДПЎ·µДНЁЦЄ (The Announcement of the Department of Environment Protection of the Ministry of Commerce about issuing “Guidelines for Environmental Protection in Foreign Investment and Cooperation”). - 2013.. And it is quite presumable that Chinese companies will try to invest abroad in order to obtain green technologies, which are not developed in China yet, while the Chinese government also promotes companies to use indigenous innovation in the energy-effective sphere.

Furthermore, in the "China Greentech Report 2012" it is noted, that the cooperation between Chinese and foreign companies in green technologies and renewable energy is increasing. It is partly considered as a tool for mitigating the host country concerns over Chinese ODI in resource and technology spheres The China Greentech Report 2012. . These international interactions are thus profitable for Chinese companies to comply with energy-efficiency requirements, as well as to improve their image internationally.

f. Conclusion

This chapter gives general picture of China's technological development, which shows the general trends in this sphere - large investments in R&D, active participation of business sector in innovation activities, skyrocketing number of granted patents, etc. All this features represent fast evolution of S&T system in China, mostly as the efforts to resolve current socio-economic problems. Furthermore, the implementation of relevant policies by the Chinese government have been being intensified recently, which manifested in the proclamation of the 2006-2020 strategy. Nonetheless, there are certain problems and distortions in it, which makes it difficult for the Chinese S&T system to compete with S&T systems of developed countries. The Chinese government understands and constantly tries to cope with these impediments, and the recent successes of the 2006-2020 strategy actually have proven that these efforts are efficient.

In addition, it seems likely that more and more Chinese companies will try to become more efficient in their production. The main factor, which urges Chinese companies to comply with environmental standards, is the state policy, as it is reflected by the 2011 survey. Then goes resource scarcity, resource prices and energy security concerns The China Greentech Report 2012. - 2012. P. 50.. On the other hand, global competition requires companies to minimize cost, and excessive usage of resources may impede their development. Overall, it is evident that developing energy-efficient technologies is a very important task for China, its national companies, and the further economic development. Its fulfillment will allow improving the very quality of manufacturing and the international image of the country, Chinese brands, etc.

On sum, the importance of R&D is reflected by the amount of GERD, which is rising so rapidly. Furthermore, both the Chinese government and business sector are interested in improving this sector, considering it as the future engine of the whole economic growth. But the Chinese S&T system is still undeveloped, and it will take decades of improving to catch up with industrialized Western countries. That is why it is possible that Chinese companies will go abroad and buy up many technologies, which are relevant for them, but not developed in this country.



6. The share of investments in created assets in the total number of ODI

Above the dynamics and structure of Chinese ODI was shown, as well as the general importance of technologies and innovation for Chinese economy, including the sphere of low energy-consuming technologies. And in this chapter the present structure of Chinese ODI is discussed, where investments into resources are completely overwhelming to date, though chances are that it will be changed in the near future.

a. Characteristics of Chinese ODI in foreign created assets

Chinese ODI in foreign created assets are different from the general pattern considered above and has its own features. First, unlike the general pattern of ODI considered in the first chapter, Chinese investment for example in technology-related sectors is mainly made by private companies, rather than by SOEs, though the difference is slight (see figure 21). But it is quite possible that the dissimilarity is far bigger in reality - the data for that pie chart is taken from the Heritage Foundation dataset, where only investments above 100 million dollars are regarded, while many small-scale investments in the this area are made by SMEs, though their willingness to invest in foreign created-assets is reflected by different surveys (e.g. "China Goes Global 2013"). Anyway, it should seem natural, considering the fact that most Chinese SOEs are engaged in strategic industries, such as energy, space technologies, telecommunications, etc.



Figure 26: Shares of Private- and State-owned Enterprises in Technological ODI (it should be noted that ZTE, CCC and Huawei deal with Ethiopian Telecom is considered as governmental; the data is for the year 2012)

Source: author's calculations based on the Heritage Foundation dataset

Second, the majority of investments have gone to OECD countries, which is quite predictable, due to the fact created assets are mostly developed there. Though it is not really evident from the Heritage Foundation data, Zhang provides more convincing observation of the distribution of 88 R&D units, established by Chinese companies (Zhang, 2010). Furthermore, Wang B. underscores the idea, noted by other scholars as well, that only ODI in developed countries with appropriate environment may be effective in the sense of related spillovers and productivity gains (Wang, 2012, p. 155).



Figure 27: Distribution of ODI Related to Technology by Country (values are given in million dollars; the data is for the year 2012)

Source: author's calculations based on the Heritage Foundation dataset

Figure 28: Distribution of R&D Units by Region (the data is for the year 2010)

Source: dataset is provided by Zhang J. International R&D Strategies of Chinese Companies in Developed Countries: Evidence from Europe and the U.S.



Third, acquiring technologies by Chinese companies is often accompanied by seeking brands, managerial practices and skills, etc. It is very important, considering the fact, that Chinese MNCs are very different compared with MNCs from industrialized countries - they rarely have advantages like core technologies, which are usually imported from abroad, thus leaving only a fairly small profit margin; organizational and management skills, which prevents companies from successful international adaptation; famous brand names - according to the "100 World Best Brands in 2013" and "The World Most Valuable Bands" there are just a few globally recognized Chinese brands Interbrand - 100 World Best Brands in 2013; Forbes - The World Most Valuable Bands., and the strongest national brands are owned by the Central Government (mostly in resource sector, finance, telecommunications, etc.) (Wang, Wang, 2011, p. 105-106). But there is established and mature manufacturing base in China with related technologies, though it is not necessarily up to date Partially it is because of inward FDi, but the problem is that foreign companies don't want to provide their Chinese counterparts with core technologies, design, etc.. That is why through operating on the domestic market many of them can compensate the losses on international markets. Furthermore, they do have support from the government, such as incentives for ODI, streamlined administrative procedures and capital controls, information support and reduction of investment risks.

After all, Wang B. and Wang H. also pointed out that Chinese companies have their own particular advantages like their small size with simple management structures, good adaptive and entrepreneurial capabilities, cheap labour force, being accepted by host countries much more than their state-owned counterparts (Wang, Wang, 2011, p. 107). Therefore, it is quite profitable for Chinese companies to go abroad and augment new capabilities, being supported by the government and having their own specific advantages.

There are also other data, which are worthy of consideration, provided by survey of "China Goes Global 2011" (see figures 24-26). According to it, the prevalent investments are those below the level of 1 million USD (42%), followed by investments from 1 to 5 million (33%), which are primarily made by private companies (62%) in Asian and European countries (31% and 24% respectively). These data differ significantly from what was described before - of course there could be biases in any survey, especially in those, related to very sensitive financial issues, but still it provides us with new information. Thus it can be inferred, that among small and medium investments, most of which are below the level of 5 million USD, private companies are dominant and their primary destinations are Asia, Europe and the USA.

Figure 29: Distribution of SMEs' ODI in Manufacturing by Amount (the data is for the year 2012)

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



Figure 30: Distribution of SMEs' ODI in Manufacturing by Region (the data is for the year 2012)

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

Figure 31: Ownership Structure of SMEs Invested in Manufacturing (the data is for the year 2012)

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



In fact, these two datasets allow us to compare big enterprises (as the Heritage Foundation dataset includes only investments above 100 million USD) and SMEs (reflected by the "China Goes Global 2011" survey). If in the former the share of European and North American countries is bigger (though not significantly) and the proportion of private- and state-owned companies is almost equal there, in the latter the share of Asian countries is prevailing (though Europe and North America are still very important), in ownership structure private companies are completely dominating and the bulk of investments are under the level of 5 million USD.

These inferences are not surprising, considering the fact that some Chinese SOEs are very large in their size (like ZTE for example), some of them represent government strategic assets, making huge investments according to the general policy, while at the SMEs level private companies per se are prevailing due to their higher effectiveness compared with state-owned counterparts of the same size. The differences in regional distribution can be explained by various absorptive capacities - bigger companies are more likely to absorb foreign high-tech and have much more resources to accommodate and operate successfully in distant territories like the USA and Europe, when some SMEs are prone to invest in geographically and culturally close Asian countries.

b. The share of strategic-assets investments in the total number of ODI

The investment in strategic assets has the most overall positive influence on the competitiveness of the Chinese economy, unlike resources-seeking investment, as Wang B. noted that (Wang, 2012). They may allow Chinese companies to catch up with their foreign peers and benefit a lot from foreign created assets. Nevertheless, its share in the general pattern of Chinese ODI is still very low.

For example, from the diagram given in the first chapter it is clear, that Chinese ODI in manufacturing (which is the core part of the investment in strategic assets) is tiny compared with investments in natural resources. Furthermore, the recent trend noted by Wang B. is even more surprising - since 2003 there was a decrease in the share of manufacturing investment in the total number of non-financial ODI going from about 21% in that year to 5% in 2008 and 2009 (Wang, Wang, 2011, p. 102).

Figure 32: Amount of ODI in Strategic Assets (values are given in million dollars)

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

Figure 33: Percentage of Strategic Assets-seeking ODI in the General Pattern

Source: author's calculations using MOFCOM data of the total number of investments, ODI in manufacturing and S&T sectors

There are several explanations for this point. First, it should be kept in mind that the importance of investment in primary sector has been traditionally significant for China and its economy - due to its large size, population and to the low natural resources endowment. That is why Chinese companies (primarily SOEs) started their expansion abroad from buying up natural resources or shares of companies, which were engaged in this sector.

Second, as Wang B. and Wang H. put it, these jumps are related to the Lenovo's acquisition of IBM's personal computer business in 2005 and the global financial crisis in 2008, and the very trend of manufacturing ODI increase is slow, partially because of approval process, which is a must for companies (Wang, Wang, 2011, p. 101-102). As it has been already noted, there were some improvements there, but still four different government agencies are controlling this process - NDRC, MOFCOM, China Customs and SAFE, and for example in Zhejiang province only 50% of private firms bypassed the official approval procedure (Wang, Wang, 2011, p. 102).

c. Motivation of Chinese manufacturing enterprises to internationalize

Most of the companies, which undertake ODI with the motivation to benefit from the created assets of foreign countries, are themselves manufacturing, and there are a number of reasons for such Chinese enterprises to internationalize. Nevertheless, the point is that these motivations are unlike the reasons, which stimulated companies from developed economies to go abroad - the major one is that Chinese enterprises primarily do not have core technologies to compete successfully with their foreign counterparts on international as well as domestic markets. Nevertheless, without having enough firms-specific and ownership-specific advantages they are still willing to invest abroad.

Wang B. and Wang H. pointed out the most significant reasons to implement ODI by Chinese manufacturing firms and calculated their percentage:

1. Globalization, which reduces the costs of operating overseas;

2. Government procurement of ODI as well as preferential policies given by the host country;

3. Chinese companies often have to go abroad because of harsh domestic competition (including competition with foreign-invested enterprises) to augment strategic assets such as R&D facilities, technologies, brands, distribution networks and managerial competencies;

4. So-called "institutional escapism" - some Chinese companies are trying to go abroad in order to avoid different disadvantages encountered on domestic market, like regional protectionism, limited access to capital, lack of developed intellectual property rights, etc.;

5. In order to bypass trade barriers;

6. Efficiency seeking;

7. Natural-resource seeking (Wang, Wang, 2011, p. 107-109).

Figure 34: Percentage of Different Motivations of Manufacturing Enterprises for the Year 2009

Percentage of different motivations of manufacturing enterprises for the year 2009
	Market seeking	Natural resource seeking	Technology seeking	Other strategic asset seeking	Efficiency seeking
Private firms	Amount	3.09	2.938	6.217	22.722	2.193
	Per cent	8.3%	7.9%	16.7%	61.1%	5.9%
SOEs	Amount	5.72	1.776	10.425	2.743	0.25
	Per cent	27.35%	8.49%	49.85%	13.12%	1.2%
Total	Amount	8.815	4.714	16.642	25.465	2.443
	Per cent	15.18%	8.12%	28.65%	43.85%	4.21%

Source: Wang B., Wang H. calculations based on NDRC's data - Wang B., Wang H. Chinese Manufacturing Firms' Overseas Direct Investment: Patterns, Motivations and Challenges // Rising China: Global Challenges and Opportunities. - Jane Golley and Ligang Song, eds., ANU Press, 2011. P. 110

As it can be seen from the chart above strategic asset seeking (aimed to improve firm-specific advantages and included brands, tacit assets, as well as distribution channels), technology seeking and market seeking are the dominant motivations for Chinese private- and state-owned manufacturing enterprises, while efficiency seeking and natural resource seeking are not. It is quite logical considering the fact, that manufacturing firms are constantly seeking to improve their competitiveness trough ODI, while natural resources and efficiency are not so urgent, due to the prevalence of cheap labour and sufficient resources procurement made by SOEs. In addition, along with the importance of technologies, brands and managerial practices market-seeking motive is becoming relevant, which shows the possible intention of some Chinese companies to struggle with MNCs for foreign consumers.

d. Entry modes of Chinese manufacturing enterprises

In general four entry modes can be pointed out, as Wang B. shows it (Wang, Wang, 2011, p. 110-113):

1. Setting up overseas R&D centers - for example Haier Group has set up design and R&D centers in Los Angeles and Boston to meet the needs and wants of local consumers. It is noteworthy, that such R&D centers, for example, in Europe are not just technology seeking and asset augmenting, but are also embedded in the S&T system of the host countries, cooperating with other R&D centers (Minin, et al., 2012; Zhang, 2010);

2. Setting up joint ventures with companies mainly located in advanced economies - for example cooperation between TCL and Thompson SA to produce televisions and DVD players;

3. Merges and acquisitions (M&A) of overseas firms - this strategy is the most usual one, because it allows Chinese companies to obtain immediately necessary technologies, brand names as well as faster establishment of R&D capabilities. The most prominent example of this entry mode is Lenovo's acquisition of IBM's PC business, when this Chinese enterprise not acquired new technologies, managerial practices and PC research centers, but also advanced worldwide distribution and sales network;

4. So-called "clustered going abroad" - this strategy is quite suitable for Chinese SMEs, which are using connections among overseas Chinese to settle down in certain territories and organize industrial parks.

It is worthy of noting that for example in the wind turbine area the most productive usage of technology turned out to be acquiring via joint design, while acquiring through production license and domestic R&D proved to be less effective in this area (Qiu, Ortolano, Wang, 2013, p. 315). Of course, it may not be the truth for the all industries, but still the importance of international cooperation in the technology area is evident, and probably that is why many R&D centers, for example, are granted certain degree of autonomy in their decision-making, being centers of learning for Chinese stuff at the same time (e.g. Zhang J. 2010).

Again, the data from the survey presented in "China Goes Global 2013" considerably differs from the common understanding of major entry mode proportions of Chinese companies. From the pie chart below it is evident, that direct investment in building plants are prevalent.

Figure 35: MNEs' Entry Modes

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

Probably these discrepancies depend on the size of an enterprise - the bigger it is, the more likely that it would undertake M&A, rather than greenfield investment as a major entry mode and vice versa. This assumption may be explained by higher absorptive capacity of large companies to adopt foreign technologies, while smaller firms are unable to implement it, due to the lack of experience, managerial skills, etc. Thus the former are buying up already existing technologies, while the latter do not.

e. Problems encountered by Chinese companies in their internationalization

Besides the problem of red tape in approving ODI of Chinese enterprises noted above, in their internationalization Chinese companies have met a number of other problems, which can be generally characterized by their lack of experience in the global markets.

First, investing abroad implies risks, especially for companies lacking ownership or firm-specific advantages. That is why many of them have undergone losses, as TCL had in its joint venture with French mobile company Alcatel. This problem is closely related to the lack of absorptive capacity of Chinese enterprises, some of which encounter post-acquisition difficulties and are unable to adapt operating abroad; build up win-win relationship with foreign stakeholders; deal with foreign regulations, unions, employees and local communities; absorb acquired technology; operate obtained brand names, etc. (Wang, Wang, 2011, p. 110-113).

Second, poor corporate governance and management skills of Chinese firms are also a negative factor for their successful internationalization. Many of them are reluctant to undergo any changes in order to adapt, ownership structure is often quite vague and individuals or families might toughly control a firm despite clearly defined property rights (Wang, Wang, 2011, p. 110-113).

Third, because of this lack of transparency and flexibility performed by Chinese companies, many of them were prevented by the governments of host countries to invest. For example the Heritage Foundation provides a list of troubled transactions, which includes up to 120 cases from 2005 to 2013 The Heritage Foundation dataset..

f. Three cases of technology-seeking acquisitions

There are many technology-seeking acquisitions employed by Chinese companies with completely different results - some of them are successful, some are not. Probably the most representative among such companies are Nanjing Automobile Group, Lenovo Group and Huawei Technologies.

Nanjing Automobile Group, founded in 1947, is one of the oldest state-owned vehicle manufactures, which undertook acquisition of MG Rover in 2005. The cost of that deal was 55Ј million, and this Chinese company acquired engine plant and other facilities, brands, distribution, procurement and service networks. The main aim pursued by Nanjing Automobile Group was to get stronger market positions both in Europe and in China by supplementing its own advantages like low costs, domestic distribution networks with qualified human resources, high technologies, brands, existing foreign markets, etc.

Another case is famous Lenovo Group's acquisition of IBM's PC business. Probably because of rising competition from foreign PC companies like HP or Dell it decided to undertake such a deal with IBM. And again, like in the case of Nanjing Automobile Group, this company planned to reinforce its competitive advantages on the domestic and international market by obtaining famous brand, R&D capabilities, existing distribution channels in developed countries.

The last case is about the Huawei Technologies (telecom equipment vendor) acquisition of Marconi in 2005 for 600 million Ј in order to find new markets as well as get access to new technologies. Thus the reasons are alike those of the companies noted above (Rui, Yip, 2008, p. 219-221).

Among all the similarities of these cases new markets and capabilities certainly are the main points. But besides, all the acquired companies, - MG Rover, IBM's PC business and Marconi, - were financially troubled, which made it easier for Chinese enterprises to buy them up. Another important characteristic is that these cases represent complicated "strategic intention" of combining its own advantages with the advantages of foreign companies, as Rui H. and Yip G. S. put it (Rui, Yip, 2008).

g. Possible future developments of investments in technologies

As we know from the previous chapters, Chinese ODI in general have positive dynamic, its pace of development is very high. Furthermore, the share of investments related to acquiring new created-assets is increasing - probably even more than it is reflected by the data, due to its possible biases. This point may seem even more plausible, considering the fact, that Chinese government and companies themselves are oriented towards boosting technological development and improving the competitiveness of the whole economy in general and of certain enterprises in particular. Furthermore, the experience of other East Asian states like Korea, Taiwan, etc., may serve as an additional confirmation for it.

On the government side, there are many initiatives to impel companies developing their competitive capabilities, to provide them with financial assistance in their process of internationalization, to create suitable S&T system and innovative environment in the country, to intensify green technologies usage in order to minimize energy consumption. Many of these steps have turned out to be successful. Furthermore, these developments are very important for the Chinese government itself, as it is trying to readjust domestic economy, to make it rather capital- and knowledge-intensive with high level of technologically advanced production. As Wang B. notes in his article "Upgrading China's Economy through Outward Foreign Direct Investment", the structure of the Chinese economy is to be readjusted and there are two ways to do so: first, marketization, strict control and liberalizing, and, second, increasing ODI (Wang, 2012, p. 149-152). That is why ODI in manufacturing sector, acquiring new technologies, brands and managerial practices is a hot topic in the current Chinese government agenda.

At the same time, on the Chinese companies' side, the same aspirations for technological development are obvious. They are investing more and more money in R&D, undertaking more and more investment deals with foreign companies. It may possibly be related to two different factors: first, since the onset of the globalization of the Chinese economy (especially since its entry in WTO in 2001) more and more foreign companies have been emerging on the domestic market, compelling Chinese companies to compete with far more stronger and technologically developed international rivalries; second, Chinese companies themselves are getting stronger and stronger, having huge domestic market with incredible pool of consumers and governmental support, and, as a consequence, many of them have become much more ambitious to conquer other markets. Thus, competition and new ambitions are the major drivers of the Chinese companies' internationalization.

These factors underlie the proposition that investment in foreign created assets, directed to technology acquisition, learning from foreign market, etc., are going to further increase and to become one of the main parts of the Chinese ODI pattern. Of course, its share won't be big in the near future, but the overall importance of technological development will compel more and more enterprises to invest their capital for new technologies in order to survive. Though it is hard to assess the exact scope of ODI aimed to benefit from foreign created assets increase, and the very dynamic is quite unstable jumping up and down, but for sure there will be more companies like Lenovo, Nanjing Automobile Group and Huawei Technologies, which have similar strategic intentions and buying up foreign assets and acquiring new capabilities.

h. Conclusion

Overseas investments in created assets are different from many other types of Chinese ODI: the share of private companies is much more evident, and even prevailing on the scale of SMEs, because they are far more flexible in their decision-making; the bulk of them are gone to industrialized countries, though many SMEs are likely to prefer investing in Asian countries; technology investments are often accompanied with seeking brands and new managerial skills. In addition, Chinese enterprises are willing to go global because of the necessity to compete with foreign MNEs, which are more advanced, in order to be more technologically viable, while other reasons are less important for them. Among entry modes analysts usually note M&A as the main one in general, though data from "China Goes Global" give a different picture - among SMEs greenfield investment is preferred.

Still, Chinese companies have certain problems, while going abroad, like disadvantageous acquisition, general lack of international experience and evident government presence in these deals. But it seems, that in the course of time all these difficulties will be overcome, as Chinese companies proved to be quite flexible. The successful cases of Lenovo Group, Nanjing Automobile Group and Huawei Technologies are a good example of it. Overall, the general trend of technology ODI development may be perceived as positive, with further increases in its dynamic.

After all, there is one point, which deserves special attention, - the dynamics of technology ODI are different on the general and SMEs scales. Due to the lack of data it is hard to clarify these differences more precisely, but they are very important, because the future of technology ODI seems to be behind SMEs, which are more flexible, independent, active and welcomed by host countries. Probably recent trends on this very scale are reflecting the future of technology ODI.

7. Chinese ODI from the perspective of the OLI paradigm

After describing the OLI paradigm, the concept of the investment development path and considering the current pattern of the Chinese ODI growth, let's move to the latter from the perspective of the former and try to assess the applicability of the theoretical approach designed by John Dunning to the Chinese case as an example of transitional economy.

The tricky point about the concept of investment development path is that it is very general and to some extent even vague due to its broadness. It is obvious that on the total scale China can smoothly be embedded into the model, looking at its import/export operations history, as well as at the inward/outward investments growth - both are showing skyrocketing figures. Thus, according to the model China is on the third stage of its development path, taking into account its nature as a transitional economy with a big variety of labor-intensive industries and low competitiveness of domestic enterprises on the global scale. Evidently, the key point of moving further to the economic prosperity is based on the ownership advantages of domestic companies, different capabilities and certain government support. From the chapter above we saw, that under the auspices of the state L advantages are improving, the necessary S&T infrastructure and formal institutions are being established, as well as stimulating policies like "Go Global", Five Year Programs and related S&T development strategies are implemented. Furthermore, the domestic market has become much more sophisticated and the demands of consumers have risen, which force foreign companies to augment their O advantages and accommodate to the intensifying competition with constantly improving local enterprises.

At the same time, there is one very distinct point about China - the role of state is still central and crucial in the main economic activities including outward investment. As it was shown in the previous chapters, Chinese SOEs are actively playing on the global scale, which can be explained not only by the necessity to protect natural resources safety of the Chinese economy (which is implemented primarily by SOEs), but also by the willingness to exploit their different O advantages abroad. It is exactly the reason why the Chinese ODI pattern is heavily skewed towards natural assets of other countries considering its lack within the country.

Nevertheless, besides direct participation, more important and effective in terms of long-term development is, first, creating S&T infrastructure and, second, related policies to facilitate the internationalization of domestic companies. The very comprehensiveness of these policies makes China so different from Western countries, active reciprocal interaction between companies and the state is so distinct. Thus, these are two major sets of variables, which are affecting the interconnection between O, L and I advantages, making them more dynamic. Therefore a virtuous cycle could be established between them, when positive augmentations in one of the components cause others to change - for example O advantages at time "t" influence the configuration of I and L advantages which company is facing, and at time "t+1" changed L and I advantages influence on O advantages. On the other hand, state also receives feedback and continue to adjust its policy.

We can look closer at this virtuous cycle from the perspective of state-companies relation using the case of China by scheming it and showing their interconnectedness. First, state-led policies are influencing on O advantages of companies, specifically by improving human resources, S&T development programs, promoting resource-efficient technologies, improving education - there are positive spillovers for the economy in general and companies in particular, because the assets, managerial and technological capabilities of the latter are improving, as well as their absorptive capacity to acquire even more such capacities in future not only from the domestically created-assets, but also from inward investment (Liu Z., 2008).

Second, state-led policies directly designed to promote ODI are also affecting O advantages of companies through providing funding, discounted loans, information support and amenable process of supervision. Having this kind of governmental aid companies can be more confident in their operations abroad and get access to the necessary help when needed.

Thus, both sets of factors are improving O advantages of domestic companies, which have to catch up with their more advanced foreign peers. In addition, state also adjusts the very direction of ODI and actively supervises the viability of internationalizing projects, which reduces possible negative effects of going abroad of inexperienced local companies.



Figure 36: Model of State-company Interaction in the Process of ODI

Thus, we can see how the OLI paradigm works in the Chinese case, where there are two major exogenous sets of independent variables influencing on the dependent variable, - O advantages, - which finally leads to the positive augmentations within the OLI configuration of individual enterprises. It means that having improved O advantages, companies are seeing more opportunities abroad being able to compete more successfully with other rivals, and it in turn leads to the willingness to guard unique capabilities and assets by internalizing them. And this kind of virtuous circle starts again. All in all, O advantages being influenced by the state intervention kick off the whole structure to work and the trend of internationalization is then rising.

It seems evident that for China as a developing country the role of the state is of the highest importance to conduct catching up with developed countries and to improve competitiveness of the economy through ODI Similar finding were pointed out for other Asian countries like Singapore or South Korea (Aggarwal R., Agmon T. 1990)., because companies themselves can't create the necessary infrastructure as well as institutional framework, and having low O advantages they would be outcompeted by foreign MNEs even domestically. Furthermore, overseas companies will also be less interested in investing in such country, preferring import/export operations instead. Hence, in this case vicious circle instead of virtuous one would have taken place. Dunning and Narula add to this point noting that despite the convergence trends of income, technological and knowledge levels among developed countries and some developing ones (e.g. China and India), the majority of the latter are diverging even further from the former, so that they cannot escape this kind of vicious circle and successfully learn from foreign peers (Dunning, Narula, 1999).



Conclusion

In this paper several different trends were considered in order to construct the whole picture, in which the dynamics of the Chinese ODI are being formed. It seems that this process cannot be investigated separately, and the political context may give many hints to understand the present and the future of the Chinese overseas investment. Hence the general dynamics of Chinese ODI were considered, as well as related policies of the state from the perspective of the OLI paradigm.

a. General findings

1. The amount of Chinese ODI is constantly rising and its structure is changing. Since this process was actually started by Chinese SOEs, its pattern was primarily formed by political agenda, and most of the Chinese capital was directed to resources, necessary to sustain the economic development of this country.These SOEs are the major contributors to the process of Chinese ODI development, but a new actor is constantly rising on the scene - private companies. Their motives to go abroad are quite different from SOEs', and many of them are actually interested in other areas, such as business services, financial sector and manufacturing. After all, the share of SOEs is gradually shrinking, while the share of private companies is increasing. It allows assuming that in future the pattern of Chinese ODI will continue to change and private companies may finally lead this process, being the major actor, despite all the difficulties related to their internationalization.

2. Chinese S&T sector is also constantly improving, as it is shown by the amount of capital invested there. It is very important to note, that business sector leads this process, which means that all these investments in technological development are geared to further commercialization. At the same time, the role of the government is also prominent, though it is not direct and therefore is not reflected in statistics. In fact, since the very outset of the Reform Era the Chinese leadership has been aware of the importance of technological development for the whole economy. Consequently, it has undertaken different initiatives to improve the S&T sector, among which the latest plan is the most ambitious, aiming to achieve 2.5% share of GERD in GDP, 60% share of S&T contribution to economic development, etc. Besides, the development of energy-efficient technologies is quite evident, as it becomes more and more important for the general sustainability of the growth, increasing competitiveness of the economy and individual manufacturing enterprises. On balance, it means that technological development is a hot topic for the Chinese government and enterprises, and lots of efforts have been made. perspective share asset investment

3. ODI in acquiring foreign created assets is rising, but its share is comparatively low and unstable. Nevertheless, the very context and logic of investment development path implies that such investments are likely to rise in future. There are some features, which are inherent to enterprises in this area. First, private companies play the major role being much more flexible and independent from the government, especially on the level of SMEs, which corresponds to the general trend of the private companies share increase in ODI ownership structure. Second, many investment are directed to OECD countries, although many SMEs prefer Asian states. Third, foreign technology procurement is usually accompanied with buying brands and managerial skills, as well as distribution networks. After all, this aspiration to benefit from foreign created assets reflects the ambitions of Chinese firms to conquer foreign markets, to compete successfully with other MNEs, while the Chinese government is constantly encouraging them to do so. It is quite representative that most of internationalized companies are generally satisfied with their investments, which gives them an impetus to continue these efforts. Although there are different problems, but they are likely to be just temporal, as most of them are mainly related to the general inexperience.

4. Based on the OLI paradigm the model of state-company interaction was proposed, where it is shown that state initiatives play a major role in facilitating internationalization. Being backed by the government Chinese companies feel much more confident on the global markets and potentially have higher absorptive capacity being able to successfully learn from the experience of internationalization. On the other hand, the model is a reciprocal one, which means that the state also gets feedback and adjusts its policies according to the changing situation. It can be said that the two major sets of factors are influencing on the ability of successful internationalization of Chinese enterprises - state policies related to ODI and policies related to developing S&T infrastructure. Among various aims, it is evident that the most important one is to further increase the O advantages related to technological as well as organizational capabilities, and it is likely to be understood by the Chinese government and widely facilitated. As a result, Chinese companies get impetus to act more actively in the global markets and the virtuous cycle of internationalization is launched.

On balance, the main assumption of this paper is that the Chinese state plays the central role in improving the competitiveness of domestic companies, making them more confident in their abilities through developing S&T infrastructure and through direct policies to urge companies to go abroad. According to the logic of the investment development path, more and more companies are likely to engage in outward investment, where the main motive is to benefit from their O advantages, as well as acquire new ones. And despite the current patter of Chinese ODI in future it is more likely that asset-seeking investment will become the most important motive of internationalization.

b. Contribution of the research and suggestions for further researches

The paper provides with the additional insights to the nature of state-economy interaction. The main idea is actually quite similar to the concept of developmental state (Leftwich, 1995) in the sense that there should be a strong state, which could lead the economic development. Sure enough, China is an example of that. As it was noted throughout the paper ODI is considered as an important tool of successful economic development allowing domestic companies to exploit their ownership advantages abroad, as well as to acquire news ones. But due to their initial inability to do so in the modern world, where fierce competition is represented by foreign enterprises, the state should interfere - the experience of many East Asian countries proves this point (Dilip K. D., 1992; Wu Y., 2004). It is especially the case for Japan, which had overall similar experience several decades ago, though there were some differences as well (–Ш (Mu), 2006).

The exact way of such interference is shown in the last chapter, which provides the framework for further researches over the issue. Knowing the main channels through which state is able to promote national competitiveness in the context of ODI it may be possible to scrutinize influencing factors even more precisely. Thus, numerical methods should be implemented to study this phenomenon of state-company interaction more precisely, so that the most contributing factors could be figured out and potentially realized in concrete policies.

...