Foreign Direct Investment in China

Abstract

Foreign direct investment (FDI) in China has a long history, much, or even most of it until recently, concerning inward FDI. This history of FDI into China goes back to at least the 18th century, when European traders were establishing their Chinese bases. Even before that the Portuguese had, by 1557, established a strategic foothold in Macau, when it was leased to Portugal by the Chinese empire as a trading port. Macau is now one of two Special Administrative Regions (SARs) of the People’s Republic of China (PRC), on Guangdong’s South China Sea coast, at the western side of the mouth of the Pearl River—the other is, of course, Hong Kong. The biggest cluster of foreign investments in the 19th and early 20th centuries was in Shanghai, the de facto commercial capital of China. However, things did not really “kick on” as might have been expected until the last two decades of the 20th century for a number of reasons: the Chinese civil war; the Japanese invasion of Manchuria in the 1930s; the Second World War itself; and the establishment of the People’s Republic of China nationally from 1949, under Mao Zedong. The last of these led to a quasi-closed economy with anti-foreign policies, which meant not only limited new FDI into China, but also expropriation of the assets of significant, extant foreign invested entities (FIEs), such as the Hong Kong and Shanghai Bank and Jardine Mathieson. (Both still exist, albeit the Bank’s holding company name is now HSBC Plc, with headquarters respectively in London and Bermuda.) The really significant move, seen from the present moment, began with the declaration of the “Open Door Policy” by Deng Xiaoping in 1978, as a means of modernizing and building the PRC economy; this was further facilitated by Deng’s open support and stimulus for the market economy, including foreign investment, in his talks delivered during his “Southern tour” in 1992. In the next twenty years or so, inward FDI built up markedly, at first quite slowly, then with much greater momentum. During that initial twenty-year period, China’s outward FDI was very modest in scale and was mainly aimed at strategic learning. More recently, outward FDI has begun to grow significantly, with strategic acquisitions in established economies, aimed at achieving market positions; and in developing economies in Africa and South America, targeted at accessing the raw materials China needs to fuel its manufacturing engine. The remainder of this piece will focus on the post “Open Door” period. The works logged here are almost exclusively written in English. When it comes to the key statistical data (see the relevant section below), the PRC Government publications have English versions. Guides on how to operate in China are intended for those who wish to invest in China as foreign entities, for whom English is the accepted language of international business. Finally, the bulk of academic articles written by foreigners (from a Chinese perspective), by members of the Chinese diaspora, or by PRC academics who wish both to have their work widely read and who wish to be seen to be producing articles of high quality, are now written in English.