Comment on “Overseas Impacts of China's Outward Direct Investment”

Abstract

The rapid increase of outward foreign direct investment (ODI) from China since 2004 has raised concerns about its impact upon host countries. One of the reasons for these concerns is the lack of transparency on information regarding China’s ODI. The official data on ODI issued by China’s Ministry of Commerce have serious problems and obscures the final destination and purpose of ODI. Wang, Mao, and Gou (2014) have made a great effort to improve this transparency by compiling ODI statistics by themselves on the basis of project approval information acquired from the government. Although their statistics cover only less than 25% in value terms of actual ODI projects implemented during the period under concern, they have succeeded in offering a clearer picture of China’s ODI than the official data. For example, the official data report that 33.5% of China’s ODI stock at the end of 2011 was in “leasing and business services,” a generic category that lumps together all merger and acquisition investments in various sectors. Wang et al., by contrast, report that 52% of ODI (in value terms) made by China’s large firms went to mining, and 23% went to manufacturing, and 64% went to manufacturing in the case of small and medium private firms. While the official data indicate that 62% of China’s ODI stock was in Hong Kong, Wang et al. show that Australia was the most important destination of ODI by large firms, followed by South Africa, while in the case of small- and medium-sized private firms, Vietnam was the most important destination, followed by the USA. These important information was revealed for the first time by this paper. I hope that they will continue the recalculation of China’s ODI data and provide us with more details, including not only the stock but also changes in the ODI flow. Wang et al. also presents an interesting discussion of the characteristics of Chinese ODI. They argue that the “domestic orientation” of China’s ODI, which means that the main purpose of the ODI is to enhance domestic productivity and strengthen domestic production, makes it different from ODI from other countries. Two types of domestically oriented ODI are identified: technology-seeking ODI, which aims at acquiring advanced technologies, brands, improved access to distribution channels, and tacit assets, and resource-seeking ODI, which aims at securing the supply of resources. The former type could be more emphasized as being a specific type of ODI that has been made by many Chinese enterprises. It is worth emphasizing because it is quite the contrary to Hymer’s