Study On China’s Direct Investment In The CLMV Countries

Cambodia, Laos, Myanmar and Vietnam are the four countries that joined the Association of Southeast Asian Nations (ASEAN) most recently (hereinafter referred to as CLMV countries or ASEAN New Four countries). Of these four countries, Cambodia, Laos, and Myanmar are among the world’s least developed countries. CLMV countries have been at a disadvantage in the effort to attract foreign direct investment due to historical reasons, specifically, political instability, low level of economic development and poor infrastructure. In recent years, however, along with the United States’strategic decision to "return to Southeast Asia", and India’s Look East policy, CLMV has gradually become the focus of the international investment capital and a competition hot-spot for major countries in the region because of their geopolitical importance, abundant natural resources, cheap labor, and gradually opening economic policies.With the process of building China-ASEAN Free Trade Area (CAFTA) accelerating and the cooperation in the Greater Mekong Subregion advancing, the exchanges between China and the CLMV countries have become increasingly frequent and the economic cooperation has advanced rapidly. CLMV has become more and more important destinations of China’s foreign direct investment. China has also become one of the CLMV’s most important source countries for direct investment. To China, whether it is large state-owned enterprise with a strong competitive advantage or small business that has ability to serve small market with small-scale production technology but do not have ownership advantages and internalization advantages, they can all find their own play fields in the CLMV countries. China’s direct investment in the CLMV countries has played a positive role in obtaining scarce strategic resources, transferring excess production capacity, developing overseas markets, ensuring national economic security, and ensuring southwest border security. Further strengthening of the direct investment in CLMV countries is both in line with corporate economic interests, but also consistent with China’s national strategy.In this paper, a combination of the theoretical analysis and empirical analysis, historical analysis and current status analysis, international relations analysis and quantitative analysis methods are used to review and summarize the development process that the CLMV countries attracted foreign investment and the development process of China’s direct investment in CLMV. This study also summarizes the status and characteristics of China’s direct investment in the CLMV countries, compared the characteristics and results of China’s direct investment in the CLMV countries with those of China’s direct investment in the six founding members of the ASEAN. In addition, this study conducts comprehensive analyses on the push factors and potential risks of China’s direct investment in the CLMV countries, and based on the analyses proposes targeted policy recommendations. It is expected that this study will have important theoretical significance on the subject refinement of the ASEAN studies, thus contribute to the applications of the theories on direct investment from developing countries to the high-risk countries. It will complement and enrich existing research results at the same time help in-depth understanding of the economic and trade relationship between China and the CLMV countries, help properly handle the contradictions and frictions in bilateral economic and trade relationship, and promote further development of bilateral economic and trade relationship. In addition, this study is expected to provide concrete advice for Chinese enterprises, especially small and middle size enterprises, to develop market in CLMV countries. Finally, it will provide useful references for multiple levels of government to develop and adjust its foreign investment policy and to implement "Going Out" strategy.This study is developed around six sections:The first section is the literature review on foreign direct investment theories. This section systematically introduces and critically summarizes the basic theories of international direct investment, including the Marxist theory of capital export, theory of international direct investment from developed countries, theory of international direct investment from developing countries, and recent development in the theory of international direct investment.The second section discusses the development of China’s direct investment in the CLMV countries. This section first reviews the economic development and the process of attracting foreign investment for the CLMV countries. It also analyzes the distribution of the source countries and industries for different countries. Then it reviews the history and current development of China’s direct investment in the CLMV countries; and summarizes the characteristics of China’s direct investment in CLMV countries.The third section analyzes the factors that push Chinese direct investment in the CLMV countries. The inevitability of China’s direct investment in the CLMV countries is first analyzed based on China’s national investments strategy. The feasibility of China’s direct investment in the CLMV countries is then analyzed based on the comparative advantage of multinational enterprises. Afterwards, the favorable foundations for the rapid development of the China’s direct investment in the CLMV countries are analyzed based on the factors that promote bilateral relations. Finally, the regional advantages Chinese direct investment in the CLMV countries are analyzed based on the investment environment in the receiving countries.The fourth section is the performance analyses of China’s direct investment in the CLMV countries. The following four steps are taken to study the trade effect of the direct investment performance between China and the CLMV countries:model building, criterion selection, empirical analyses, and results interpretation. In addition, analyses are conducted to compare the performance of China’s investment in the CLMV countries with the performance in the six founding member of the ASEAN.The fifth section presents the risk analyses for China’s direct investment in the CLMV countries. Three risk factors are analyzed:receiving country’s political risk, economic risk, and operational risk.The sixth section discusses strategies to encourage Chinese companies’direct investment in the CLMV countries. Specific recommendations to macro-level policy strategies are proposed in three aspects:strengthening policy guidance, strengthening policy services, and deepening bilateral cooperation. Specific recommendations on further increasing the direct investment in the CLMV countries are proposed in four aspects: target setting, industry selection, entry mode, and risk prevention.Research innovations are reflected in three major areas in this study:The first area of innovation is regarding the research perspective. So far, most*literature on direct investment in ASEAN has treated ten ASEAN countries as one unit. Among ASEAN countries, however, there are huge differences in the political system, economic development, cultural and social history. This study singles out CLMV countries as a unique sub-regional entity for the research based on their similarity of economic development, historically and geographically closeness with China, and genetic and geographical advantages of China’s direct investment in these countries.The second area of innovation is on the framework of analyzing factors that encourage foreign direct investment. This study establishes an integrated analyses framework that treats four major players of the foreign direct investment--investment originated country, investment-receiving country, bi-literal interaction, and enterprises--as one dynamic system. The proposed framework emphasizes the facilitating impact of the mutual trust in political relations, as well as the sub-factors such as foreign aid and foreign contracts in bilateral economic relations. This study argues that for direct investment in high-risk countries like the CLMV countries, the bilateral economic relationship is the foundation of Chinese enterprises’ foreign direct investment, and bilateral political relationship is the security protection of Chinese enterprises’foreign direct investment.The third area of innovation is on analyses of investment performance. Using empirical and comparative methods, this study analyzes the performance of China’s direct investment on both the new four (CLMV) countries and the six founding members in ASEAN. It shows that China’s direct investment on both groups of countries is all pro-trade FDI. The trade complementary effect on both import and export is higher in the direct investment in CLMV countries than in the six founding ASEAN countries.Due to some difficulties listed below, this study has two areas that could be improved in future research. First, the depth of the analyses may be affected due to difficulty to collect data about the CLMV countries, which are four of the least-developed countries in the world with low level of information technology and few research literatures available. Secondly, with limited space, this study did not elaborate the analyses on some key cases of the direct investment from China to the CLMV countries. Nor did it have in-depth analyses on some important regions where investment are originated (e.g., Yunnan and Guangxi). The author will conduct further research studies in the future to fill the gaps in both areas.