Foreign Investment and Multinational Operations

Chinese firms have been invested in a wide range of fields abroad. Foreign investments were firstly centralized in the fields of trading, processing, foreign project contracting and travelling. The sectors have been significantly expanded from these traditional industries to industries where advanced technology are required such like extractive industry, banking and insurance, and information industry. According to statistic data of the year 2009 from the Department of Economical Information, China Council for the Promotion of International Trade (CCPIT), among all Chinese firms with foreign investments, 39% of them have investments in manufacturing industry, which is the most popular sector as to China's foreign investments. In home appliance industry, Haier, the leading brand of white goods globally and the most valuable brand in China, has established 61 trading companies (19 outside of China), 8 design centers (5 outside of China), 29 manufacturing facilities (24 outside of China) and 16 industrial parks (4 outside of China). In addition, the company employs more than 50,000 people around the world, and has created 10,000 jobs outside of the PRC. The second one is trading industry with 21% firms' participation and has long been a popular industry in oversea investments of Chinese firms. Extractive industry accounts for 11%, followed by services' 7% and agriculture's 6%. There are also foreign investments in the fields of banking and high-tech, however, only contributes to a minute part. Examples can be present as a telecom solutions provider, Huawei's establishments of 17 R&D centers around the world such as in the Silicon Valley and Dallas of the United States, Stockholm in Sweden, Moscow in Russia and Bangalore in India to ensure global R&D with outstanding people.

Chinese firms make foreign investments for different purposes. 39% Chinese firms investing abroad in order to expand their oversea markets (data from the Department of Economical Information, China Council for the Promotion of International Trade), which is the primary goal of their oversea investments. Another important purpose of these firms' foreign investments is to obtain advanced technology as well as multinational operating experience. Besides, other factors including lower costs, natural resources, a world-known brand and trade barriers also drive some Chinese companies investing abroad. Regard to the way that the firms make foreign investments, most of them (59%, Department of Economical Information, China Council for the Promotion of International Trade) choose to establish sales offices abroad which does not require a significant amount of capitals. However, compared to that, only 26% firms have set up their own retail stores or marketing network, this, in some degree, reflects their relatively low market share overseas and thus, Chinese firms still have a long way to go to reach their world-class brand goals. Another way of foreign investments, merger and acquisition (M&A), has been brought to focus in recent years. Though there are an increasing number of international M&A conduced by Chinese firms that have world-wide influences like Geely's complement of Volvo acquisition, only 8% of Chinese firms use it as a way of oversea investments, even less than types of investments such like incorporate with domestic firms, establish sole-funded corporations.

Types of investments

Types of investments percentage

Sales offices 53%

joint venture 26%

Retail stores and sales network 24%

Sole-funded company 20%

Non-equity cooperation 9%

Merger & Acquisition 8%

However, there are still some problems with the Chinese firms' foreign investments, among which the obvious one is probably the small scale of investments. In 2009, the Survey on Chinese Firms' Foreign Investments conducted by the Ministry of Commerce revealed that only 20% firm has an foreign investment larger than ＄10,000,000. Over 2/3 firm has an investment less than ＄5,000,000 (41% have investments less than ＄1,000,000 and 25% between ＄1,000,000 to ＄5,000,000). The percentage has dropped significantly in the recent 3 years from 73%, 2006 to 66%, 2009. However, the scale of foreign investments is still minute.

Another concern is about the limited distribution of investment places. The US is the most popular country in terms of investment where 20% Chinese firms export their capital to. Another comparable place is Hong Kong, also with 20% firms' investments. Regardless of its advantages in geographic location and its status in international financial market, this preference may, in a large part, from its favorable tax policy (no export or import duty, comparatively low income tax) 61% oversea projects spreads in the Asian-Pacific region, eastern and southeastern Asia in particular.