Will China buy up the world? Not yet, but keep an eye on how Chinese firms are moving abroad with speed, not just to purchase natural resources such as oil, coal and timber, but also to make their mark in competitive industries such as technology hardware.
New data released this week show foreign direct investment (FDI) in China climbed to a record $105.7 billion in 2010, even as such investment into India fell to $23.7 billion. And the Chinese government said on Tuesday that investment by Chinese firms in non-financial activities outside the country hit $59 billion in 2010, up by more than one-third compared with 2009.
If you set aside the around $25 billion of FDI that came into China’s red-hot property sector last year, then you come across the stark fact that the gap between inbound and outbound FDI is narrowing very fast in China.
The well-known explanation is that China is frenetically buying natural resources in Africa and elsewhere to fuel its growth engine, often winning deals that India has also been chasing. However, as the World Bank’s private sector development blog noted in a recent post, “Most of Chinese outbound FDI projects have been in the IT and communications sectors, led by emerging multinationals such as Huawei Technologies (whose products and solutions have been deployed in more than 100 countries), ZTE (which operates in more than 140 countries) and Lenovo.”
The emergence of Chinese multinationals (MNCs) on the world stage could be one of the most important business trends in the new decade. It will likely be on a par with the emergence of Japanese MNCs such as Sony and Nissan in the 1970s and South Korean MNCs such as Samsung and Hyundai in the 1990s.
Companies from emerging markets tend to move out for a variety of reasons—from securing natural resource supplies to getting access to new technology to derisking their business. But most of all, it is a sign that the home economy has developed and the local currency is appreciating. We see these factors at play in China right now.
The problem is how other governments should respond, given the well-known habit of Chinese firms to work in close proximity with government, blurring the lines between business ambition and national strategic moves. This is why countries from the US to India continue to treat Chinese FDI with suspicion.
Should Chinese MNCs be met with open or closed doors? Tell us at firstname.lastname@example.org