Chinese Companies Go Global: Recent Progress
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The policy for Chinese companies going global was launched in 1999 as a call to encourage outward direction investment (ODI) in line with national strategic objectives. In particular, the policy was intended to accelerate the acquisition of foreign technology and expertise. Other goals include managing overcapacity in the Chinese market, improving the brand recognition of Chinese products, and diversifying product offerings by catering to foreign markets.

While China’s “going global” initiative remains robust, 2017 data on Chinese outward direct investment (ODI) shows that it may be losing some steam. Chinese ODI in 2017 was almost half of what it was in 2016. However, this is probably a reflection of shifting investment priorities from Beijing and the imposition of new outward investment controls implemented toward the end of 2016.

Evolving Makeup of Chinese ODI Markets

In 2017, Singapore overtook the U.S. as the primary destination for Chinese outward FDI. Singapore serves as a highly strategic location for China, as a hub for Chinese businesses in Southeast Asia and a critical location on China’s maritime Silk Road.

Emerging markets have become a more important part of China’s overseas investment. One likely cause of this shift is official efforts to curb “irrational” overseas investment following a period of capital flight 2016, in which Chinese companies bought relatively safe assets in developed countries. This was intended to steer capital away from assets like real estate, hotels, film studios, and sports clubs, and towards strategic targets, such as the Belt and Road Initiative countries (many of which are emerging or frontier markets). Nonetheless, developed countries remain the most important markets for Chinese overseas investment.

Chinese ODI on the Belt and Road Initiative

China’s going global strategy has underperformed when it comes to the Belt and Road Initiative (BRI). Chinese authorities and spectators expected large year on year increases in BRI investment. However, such growth since 2013 has been tepid. In 2016, ODI into BRI countries shrank by 2%. This is likely a reflection of country risks. For instance, the majority of the BRI’s large M&A deals have occurred in countries with low policy and operational risk.

The BRI presents financial risks for both the Chinese government, which offers concessionary lending to countries and Chinese businesses, which seek to make profitable investments. The Chinese government, which is only directly accountable to itself, may have a bigger appetite for these risks than companies that are accountable to shareholders. For instance, if a foreign government fails to repay loans for a port or railroad of the BRI, and the Chinese government takes control of the port, the Chinese government has achieved strategic gains even if it lost financially. Businesses, however, are more focused on strictly financial outcomes. This could help to explain the underperformance of investment in the Belt and Road initiative.

Companies are closely attuned to the operational risks associated with the frontier markets on the Belt and Road. According to the Economist Intelligence Unit, most countries on the BRI are high-risk, high-opportunity countries for Chinese investors. On the other hand, countries like Malaysia and Singapore present very substantial opportunities and, due to their policy stability and business environment, present relatively low risk for Chinese businesses.

Nevertheless, countries with a long time horizon will be interested in gaining a foothold into these emerging markets that are poised for high growth, due to the prospect of Eurasia gaining economic gravity in the coming decades. If Chinese companies move early, they may hold dominant positions in these markets for the long run. Additionally, the Chinese government, aware of the fact that country risk is hampering BRI investment, is enhancing protocols and policies to manage these risks. For instance, under guidance by the authorities, Chinese insurance and lending institutions are raising their standards for BRI applications.

Key Industry Developments

Automotive industry

In the last few years, Chinese automotive giants have become eager to develop a position of global preeminence. In one example, Baidu has partnered with Microsoft and other foreign technology firms to build an autonomous driving platform. Chinese logistics and technology company TuSimple Inc. is already test-driving autonomous commercial vehicles in the U.S.

Since China announced the coming end of trade barriers in the automotive industry, Chinese car companies have an added impetus to go abroad. Their market share at home may erode, as the relative price of Chinese cars will increase. Currently, Japan and the US are the primary targets for China’s ODI in the automotive industry.

Entertainment industry

China’s ambitions to go global in the entertainment realm are under threat because the State Council has put overseas investments in entertainment into the restricted category. Nevertheless, global expansion of the entertainment industry is an important objective when China seeks to enhance its global image. China’s entertainment industry at home is carefully protected and subject to import quotas. Without addressing this, its growth prospects abroad are likely to be limited. Thus, the going global strategy for China’s entertainment industries is on the backburner of the country’s priorities for now.

High technology

High technology may be the most important prong of the going global initiative. On the one hand, China seeks to take on global markets with low-cost, high-quality technology devices and equipment, like cell phones, computers, modems, and TVs. Now, it is moving up the value chain. For example, DiDi Chuxing, China’s Uber, is seeking to conquer global markets. DiDi has its sites closely set on Mexico, where Uber is dominant. On the other hand, China seeks to acquire high technology companies abroad to help upgrade the technology base within China.


“Going global” remains a critical part of China’s development strategy. Nonetheless, shifts in the Chinese economy may decrease its relevance. For example, as China’s domestic consumer market becomes more robust, Chinese firms may be less inclined to incur the fix costs of conquering global markets, and instead may focus more heavily on the enormous domestic consumer market. Similarly, as China’s domestic high-technology sector becomes more innovative and vibrant, Chinese technology giants may be focused more at home than abroad, for acquisition targets. For these reasons, China’s going global initiative will be increasingly focused on national strategic and geo-economic targets like the Belt and Road Initiative or development in African markets.

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