The Chinese economy is in the middle of a transformation from an economy that was a recipient of the second largest amount of foreign direction investment (FDI) in the world after the US to one that has started making enormous amounts of outward FDI. In 2012 it was the third largest source of OFDI after the US and Japan. This article traces the path of China emerging into a large OFDI-making economy. By some measures China’s OFDI has grown larger than some of the traditional OFDI-making economies. It examines China’s OFDI trajectory and its shifting pattern, its points of inflection, and the domestic and global drivers of this transformation.
Although it started in a subdued manner, commercially and geographically China’s OFDI has reached significant levels. During the new millennium, since the adoption of the “go global” strategy by the government, both qualitative and quantitative changes in OFDI flows have became apparent. There are some specific factors that helped China in its rapid OFDI spurt, such as China’s conscious attempts to integrate regionally and globally, its participation in global value chains as well as the global financial crisis. The government has played a decisive role in the expansion of Chinese OFDI. An overwhelming proportion of large mergers and acquisitions have been made by state-owned enterprises (SOE). Although initially the involvement of private sector MNCs and business enterprises in OFDI was restrained, during recent years they have picked up enormous momentum. As Chinese companies are relatively new to ODFI, they suffer from some limitations. There can be few hastily contrived remedies to alleviate these systemic weaknesses.
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