China’s Global Investment

On the 4th and 5th of September, the East Asian Bureau of Economic Research hosted a roundtable and public forum on Chinese overseas direct investment.

The meetings offered an opportunity for leaders in business, government and academia to share their thoughts on Chinese ODI and to dispel some of the myths surrounding its growth and impact.

The first day consisted of three roundtable discussions, chaired respectively by Professor Peter Drysdale, Professor Ligang Song and Dr Ken Henry. The first session focused on the regulation of Chinese firms. It was agreed that China’s investment model needed to be changed. The current system has held institutional advantages for large state-owned enterprises, but if China is to assume greater global economic responsibility, private firms must also be encouraged to ‘go out’ and state-owned enterprises need to be more accountable to the market. Reforms removing institutional advantages for large state-owned enterprises are in China’s domestic and national interest.

The second session focused on the corporate character of Chinese firms that invest overseas. Chinese ODI is dominated by large, centrally administered SOEs from coastal provinces. These firms can afford to take on risk and have the resources and ability to invest overseas. The geographic origin of Chinese investment is unlikely to change. But panellists agreed it was possible that the dominance of SOEs was beginning to fade. Chinese investment will increasingly be motivated by the search for new markets and greater efficiency, as well as resources.

In the final session, discussants considered the public reaction to Chinese investment in host countries. There was general agreement that the public response to Chinese investment has often been negative despite the benefits that Chinese investment can bring. In countries with regulation that ensures the market functions properly, Chinese investment has been good for the destination country, as well as for China.

In his keynote address to the public forum, Dr Henry gave a robust defence of the role of foreign investment in Australia. He argued that the current debate on Chinese investment has been fuelled by misinformation and highlighted the many benefits overseas investment has brought to the Australian economy.

The first panel of the public forum focussed upon the drivers and characteristics of Chinese firms which are currently investing overseas. Panellists discussed the desire to create profits and attain foreign technology and resources as critical motivations in the rise of Chinese ODI in the last five years. Panellists also recognised that ODI is still at an early stage of development and will change rapidly in the future as private firms and SOEs become more globally competitive.

The second panel assessed the reception to Chinese investment in Australia, Africa and the United States. Panellists agreed that the Australian regulatory system which monitors foreign investment, FIRB, is well balanced despite a similar regime being in place for decades.

The rapid growth of Chinese ODI into Australia has marked similarities to previous waves of US, UK and Japanese investment in earlier periods of Australia’s history. While managing Chinese investment does present new challenges, it undoubtedly presents numerous opportunities as well.
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Dates: Tuesday, September 4, 2012 to Wednesday, September 5, 2012
Location: Canberra