Professional Documents
Culture Documents
in China
Dr. HE Rong
Associate Professor
School of International Business,
BFSU
rhe@vcu.edu
Mar19, 2009
1
Outline
Definition of FDI
FDI (Foreign direct investment) in
China
Several important strategies for
business success in China
2
Recommended websites
www.english.mofcom.gov.cn/
www.fdi.gov.cn
www.stats.gov.cn
3
Since China's adoption of an
"open door" policy and
economic reforms beginning in
1978, international trade and
inward foreign direct
investment (FDI) have played a
key role in its rapid economic
development.
4
1. Definition
Foreign Direct Investment (FDI)
-----an investment involving a long-
term relationship and reflecting a
lasting interest and control of a
resident entity in one economy
(foreign direct investor or parent
enterprise) in an enterprise
resident in an economy other than
that of the foreign direct investor
(FDI enterprise or affiliate
enterprise or foreign affiliate). 5
Strategic motives for FDI
Resource seeking FDI
Market seeking FDI
Efficiency seeking FDI
Strategic asset seeking FDI
Other motives for FDI
6
Resource seeking FDI
To seek physical resources
including labour and intangible
resources.
Search for lower production costs
7
Market seeking FDI
To seek to sustain and protect
existing markets, and exploit and
promote new markets.
To follow suppliers and customers
Motorola 8
Efficiency seeking FDI
To rationalise the structure of established
resource-based or market-seeking
investments in such a way that the
investing company can gain from the
common governance of geographically
dispersed activities.
Two types of division of labor:
developing and developed countries;
or developed countries with same
income level;
to enjoy economies of scale.
Example: Automobile industry
9
Strategic asset seeking
FDI
To pursue an integrated global or
regional strategy.
Two types:
--Protective type strategic seekers
(e.g., accounting firms)
--expansionary MNE (e.g. toy
manufacturing)
10
Other motives for FDI
Escape investments, to circumvent
restrictions on the share of
domestic production that MNEs
might obtain.
Support investments, an affiliate or
branch office activity is a first step
towards setting up a market-or
resource-seeking FDI.
And etc. 11
12
2. FDI in China
The genesis of FDI policy
Overview of foreign investment
FDI’s role in China’s economy
13
(1) The genesis of FDI policy
FDI as part of the process of opening
up and economic reform-- Deng
Xiaoping's open-door policy.
14
15
Initial success: FDI in 1980s
16
Entrenchment of FDI in the
1990s
geographical distribution
sector distribution: manufacturing
Source of investment has changed,
more and more investment came
from OECD countries.
17
WTO entry: New phase in opening up
On Dec 11th 2001, China acceded to the
WTO.
Widen the scope of operation of
FIEs ; Opening up of services
sectors
Distribution and trading rights of
FIEs
Revision of catalogues(encouraged;
permitted; restricted; and
prohibited; 2005)
National treatment 18
TRIMs (Trade-related investment
measures); trade performance,
trade balancing, local content
requirement were abolished
new foreign bank licensing
regulations
20
Total accumulated FDI (realized
value) rose from US$1.8 billion in
1982 to US$750 billion in 2007.
26
Cross-border mergers and
acquisitions started to emerge in
1990s.
Cross-border mergers and
acquisitions—sale to the foreign
companies
1990-2000 (Millions
2004of dollars)
2005 2006
Annual
average
339 6378 8253 6724
27
Example: IBM China
Began with agency arrangement, then joint
venture for over ten years;
IBM China was established as a Wholly
Foreign Owned Enterprises in 1992.
Now use a mix of WFOE an JV formats
depending on what their purpose is for a
specific project, and also where they are
operating within the country.
28
The IBM China Research
Laboratory (CRL)
29
The IBM China Research
Laboratory (CRL)
The IBM China Research Laboratory
(CRL) was established in 1995 and is
one of the eight worldwide IBM
Research laboratories.
It is the first research laboratory
established in a developing country.
Located in Zhongguancun Software Park
in Beijing, CRL has been growing
steadily and currently employs over 150
technical staff members. 30
B. Sources of FDI inflows into
China
By the end of 2006, investment
from the top Five accounted for
70% of the total actually utilized
value.
31
Top ten sources of FDI in 2006 and 2008(100 Million US$)
No Nation or region Value in Nation or region Value in
2008 2006
1 Hong Kong 410.36 Hong Kong 202.32
2 British Virgin 159.54 British Virgin 112.48
Islands Islands
3 Singapore 44.35 Japan 45.98
4 Japan 36.52 South Korea 38.95
5 Cayman Islands 31.45 U.S 28.65
6 South Korea 31.35 Singapore 22.60
7 U.S 29.44 Taiwan 21.36
8 Samoa 25.5 Cayman Islands 20.95
9 Taiwan 18.99 Germany 19.79
34
Special economic zone: Shenzhen,
Zhuhai, Shantou, Xiamen and Hainan
Open coastal cities: Dalian,
Qinhuangdao, Tianjin, Yantai, Qingdao,
Lianyungang, Nantong, Pudong Area of
Shanghai, Ningbo, Fuzhou, Guangzhou,
Zhanjiang, Beihai and so on.
Economic and technological
development zones (54): Dalian, Tianjin,
Ningbo, Beijing and Harbin…
Export processing zones (57)
State-level High-tech industrial
development zones( 53) 35
D. Industry distribution of FDI
Manufacturing remained a major
attraction to foreign investors.
Services became another attraction.
By the end of 2006, the cumulative
FDI value in industries:
Primary Manufacturin Services
industry g
3% 71% 26%
36
Technology-intensive and capital-
intensive industry have absorbed
more and more FDI.
e.g.,Intel ; IBM;Motorola .
37
By 2006, 214 operations have been set up
by 74 foreign banks and 115 of them have
been approved for RMB business.
Total assets of these foreign-funded banks
in China have reached 120 billion USD.
Foreign-funded banks have opened 209
representative offices in China.
39
FIEs have stimulated trade
growth
import : over 50%
export : over 50%
trade deficit or surplus?
40
The role of FDI in Chinese industry
42
The controversial issues on the role
of FDI
Monopoly?
Threatening national economic
safety ?
Unemployment rate?
limited benefits from FDI--
Processing base
Over-dependence on FIEs’
technology?
43
An example
Value chain (R&D-processing-marketing-after-sale
service)
44
Discussion
1 Are there a lot of FIEs in your
country? what attitude do the government
and people take toward them?
45
3. Suppose you plan to invest in China,
can you list factors which will influence
your investment decisions, and which
factor do you think is most important?
46
Case 1: Volkswagen's Experience in
China
47
Some background: Volkswagen
in China
Volkswagen was one of the first
international automakers to
venture into China. The earliest
contact dates from the year 1978.
48
The investment of Volkswagen in
China has totalled to more than six
billion Euros from 1984 to 2005.
49
The Chinese passenger car market grew
in Mainland China 2006 by a further
26.1%, expanding to 4.15 million units.
The VOLKSWAGEN Group again leads
the Chinese passenger car market in
2006 with a share of about 17.1%.
50
The goal of the VOLKSWAGEN Group is -
despite difficult competitive conditions -
to continue its market leadership as the
most successful car manufacturer by
responding to the challenges with a
strong local manufacturing network.
51
Today, the group has 14 representative
companies in the country, undertaking
parts delivery and service provision for
both customers and industry in addition
to vehicle production.
Shanghai Volkswagen Automotive Compan
58
Find a right location
Hire good local management talent
Choose right entry mode
Research and investigation, and good
feasibility study before entering Chinese
market
59
Example 1. LG electronics
In 1993 LG electronics established a joint
venture in Guangdong.
At present, it has 19 plants, 9 branch
companies, 34 marketing departments
and 10 service centers in China. ( over
34,400 employees).
In 2002, it established a R&D center in
Beijing.
In 2003 it’s sales in China reached US$ 5
billion.(2004, US$7 billion) 60
Main products of LG
Main products of Market Market
LG electronics share position in
in Chinese Chinese
market market
PDP and LCD TV 17.6% No 1
62
Motorola opened a representative office
in Beijing in 1987, and set up Motorola
(China) Electronics Ltd. in Tianjin in
1992 .
Total investment in China: US$
3.6billion (including 0.8 billion on R&D)
Motorola has 3 wholly-owned company,
1 holding company, 5 joint venture
firms and 25 branch companies, 18 R&D
centers.
63
Motorola's Performance in China in
2006
Total sales: US$4.67 billion
Total exports: US$10.09 billion
(including export)
Total employees: 12,000(with 3,000
for R&D)
64
Rewards & Recognition in 2002
1. Largest foreign investor in China's
electronic industry (Source: MOFTEC)
2. Largest foreign company in China, in
term of sales (Source: MOFTEC)
3. The best in long-term commitment;
most innovative; best adapted to the
Chinese market; best employer in China
(Source: Fortune magazine, Chinese
edition)
65
A good corporate citizen of
China
1. Project Hope: donation of RMB 24 million in last 8
years; setting up 50 Hope schools in 25 municipalities,
autonomous regions and provinces; and funding 10,000
poverty-stricken children to return to school.
2. Higher Education: providing of RMB 11 million to 12
universities as scholarship.
3. Disaster Relief: donation of RMB 30 million; setting up
11 schools for homeless children.
4. West China Development: donation of RMB 2 million
for the "Well-Digging" project in western China.
5. Sports Sponsorship: Asian and National Games,
CNBA, Games for the Handicapped.
6. Environmental Protection: "Green China" Program in
six major cities.
7. Active support for China's bid for the 2008 Beijing
Olympic Games. Motorola's communication equipment
was used in the previous seven Olympic Games.
8. Active support for China's entry into the WTO. 66
The company's strategies are best
summarized as below:
Motorola is steadfastly committed to
investing in China and transferring
technology and building local
manufacturing and R & D capabilities in
order to provide the country with
advanced communications solutions.
The company will continue its long-term
plan to localize management in China
and to develop and train excellent local
management talents.
67
The company will continue to work
with local companies to create a
comprehensive local supply chain.
Questions?
69