Socio

Policy Brief
Number Pb09-14 JuNe 2009

China’s Changing Outbound Foreign Direct Investment Profile: Drivers and Policy Implications
Daniel H. Rosen and Thilo Hanemann
Daniel H. Rosen is a visiting fellow at the Peterson Institute for International Economics, where he was in residence from 1993 to 1998. He is also principal of the Rhodium Group, a New York–based research firm, and has been anadjunct professor at Columbia University’s School of International and Public Affairs since 2001. From 2000 to 2001 he served as senior adviser for international economic policy on the White House National Economic Council and director at the National Security Council. His work focuses on the economic development of Asia, particularly China. Other areas of research include energy, agriculture andcommodities, trade and environment linkages, and economic transitions and competitiveness. He is the author of Behind the Open Door: Foreign Enterprises in the Chinese Marketplace (1998) and coauthor of China’s Energy Evolution: The Consequences of Powering Growth at Home and Abroad (forthcoming 2009), Prospects for a US-Taiwan Free Trade Agreement (2004, with Nicholas R. Lardy), Roots ofCompetitiveness: China’s Evolving Agriculture Interests (2004), and APEC and the New Economy (2002). Thilo Hanemann is a research analyst at the Rhodium Group. His research work focuses on China’s macroeconomic development and implications for global trade and investment patterns.
© Peter G. Peterson Institute for International Economics. All rights reserved.

China’s OFDI has reached commercially andgeoeconomically significant levels and begun to challenge international investment norms and affect international relations. Yet China’s OFDI profile is poorly understood. Seen in context, China is a laggard in global investment, and the country faces considerable internal impediments to overcoming its disadvantaged position. Because of this, more-advanced economies can leverage their experienceand comparative advantage as global investors to work with China in the international investment policy arena. This policy brief helps clarify the size, intent, sophistication, and sustainability of China’s OFDI in order to lay the groundwork for related policy debates. A number of deals and policy measures announced in the first half of 009 indicate an inflection point for China’s OFDI. Withthe economic crisis depressing asset prices worldwide, Chinese firms have launched multibillion dollar bids for distressed resource firms, and the Chinese government is promoting outbound investment by easing and decentralizing regulatory procedures, broadening financing channels for firms with overseas ambitions, and openly advertising China’s international investment appetite.3 At the same time,however, global economic turbulence is making potential Chinese investors insecure. A recent survey found that more than half of Chinese firms are scaling back their overseas investment plans in response to the crisis (APFC and CCPIT 009). The value of approved nonfinancial overseas projects in the first quarter of 009 dropped to $3.7 billion, from more than $10 billion in the same period lastyear. The Chinese government has become more cautious as well, withholding approval for deals in the
rect investment” only for long-term cross-border investment with a final stake of greater than 10 percent, following the OECD’s widely used benchmark definition of FDI (OECD 008a). . We will publish a longer study on this topic later in 009. 3. Recent examples of greater international actioninclude Chinese investment delegations’ travel to OECD countries in the spring of 009; several bilateral free trade agreements with far-reaching investment provisions, such as with Peru in April 009; and the front-loading of an investment agreement in an initiative with Taiwan in May 009. . The registered 008Q1 OFDI volume was $19.3 billion, including financial deals like Industrial and...