China's Reversal Outward FDI: Characteristics, Motivations And Policies

The Foreign direct investment (FDI) has always been a focal Problem in the international economic research, and the related literature is very rich. However, the traditional FDI studies almost concentrate on the advanced countries Foreign Direct Investment experience, arguing that the multinational corporation's (MUNs) behavior of FDI is based on their certain ownership advantages or the monopoly advantage. For example, the 'Monopolistic Advantage Theory' established by Stephen Hymer(1960), the 'Internalization Advantage Theory'(Buckley& Casson, 1976), the 'Product Life Cycle Theory'(Vernon,1966), the 'Marginal Industrial Expansion Theory'(Kiyoshi Kojimathe,1978) and the 'Eclectic Theory Of Inter-national Production' (Dunning,1977,1981). In the 1970s, the emergence and growth of outward FDI from developing counties has been caused wide research-ers concerns, foreign scholars have begun to study this phenomenon, the majority is based on the traditional FDI theory, similarly the MUNs from developing coun-tries also have a special competitive advantage compare to developed countries' MUNs, such as the'Small-Scale Technology Theory'(Wells,1981), the'State on Localized Technological Capacities Theory'(Lall,1983), the'Technol-ogy-Upgrade Theory'(Cantwell & Tolentino,1991), the A. Boliznoili's Excessive Accumulation of Capital Theory and the 'Strategic Asset-Seeking Theory'(Dun-ning,1998).However, these theoretical studies still cannot explain the new phenomenon of foreign direct investment, the FDI from developing countries to developed countries, also known as reversal outward FDI. As compared to the MUNs of de-veloped countries, developing countries multinationals corporations much lower in technological capabilities. In addition, the developed countries are relatively lower return on capital than the developing countries, it is difficult to understand this re-versal OFDI, and may be the FDI theory should be improved. Studying the phe-nomenon of reversal OFDI, would help us develop and improve the existing theory of FDI, but also have a practical significance to promotion the China's reversal OFDI.China, as a large developing country in the world, has been a big FDI inflow for almost more than two decades. From outset of the'Going out'policy, China's outward FDI has been growing rapidly. As Miao said, a researcher in the Interna-tional Institute of Wuhan University, overseas economic interests have almost risen to China's core economic interests. According to the "Statistical Bulletin of China Foreign Direct Investment"(2009), China's outward FDI has been rapidly grown for eight consecutive years; the average annual growth rate reached 54%. China investment in developed countries grew rapidly in 2009, such as the OFDI to European was 33.5 billion dollars, increasing about 282.8 percent, and in North America, it increased about 3.2 times. Therefore, we need to investigate what is different between China and the developed countries in the OFDI? And what are its characteristics? What're motives of China's outward FDI, especially into de-veloped countries? How should the policy regime for OFDI be? These issues are particularly worthy of our study.In this thesis, we investigate the Chinese outward FDI which flows to devel-oped countries as the main object, systematic reviewed and discussed the domestic and foreign literatures, using a method that comminutes inductive and deductive analysis, that summarizes the previous studies achievements and limitation, and discusses the developing countries catch-up strategy mechanism by reversal OFDI, laying the basis of theoretical analysis of this paper. Using relevant statistical data for analyzing the current situation and the characteristics of China's reversal OFDI furthermore makes a briefly summary. As a result, China's reversal OFDI has a certain relationship with the international trade surplus, and the main body of re-versal OFDI is the multinational corporations controlled by the government, these corporations'behaviors have a significant macro-strategic motives, subordinate to the national policies and strategies, they control a large number of national capitals that come from the national accumulation of capital and the national foreign ex-change reserves, and they always have a monopoly status in the country. In addi-tion, China's OFDI is still in an infant stage, much lower than the developed coun-tries, and is unbalanced in the both geographical and industry distribution. Based on the above analysis, this paper puts forward the hypothesis, and designs an econometric model about the China's reversal OFDI motives, selecting a panel data sample which includes OECD 31-members of OECD countries and seven years time series 2003-2009, the model's parameters were estimated by using PCSE method. The results show that China's reversal outward FDI is motivated by market-seeking, technology-seeking and strategic asset-seeking. This thesis ex-plained the results respectively, and it approved the mechanism of acquiring com-petitive advantage by the reversal FDI. Finally, based on some OFDI policy ex-perience from other advanced countries, this paper provides some policy recom-mendations both governmental and private enterprises levels.This thesis is organized as follow.The first chapter is the introduction section of the study's content, purpose, significance, and the inside links of each part, convenient for readers to under-standing the issues studied in this paper.The second chapter is a theoretical research, the mainly objects is to summarize and discus the previous theoretical and empirical studies, learning their achievement and analyzing their limitations, and establishing a theoretic mechanism of China's reversal OFDI.The third chapter mainly presents the current situation and characteristics of China's outward FDI. According to China-related OFDI statistics, a simple chart analyzes the characteristics of its investors, regional distribution, industry distribu-tion and the main investment mode.The fourth chapter is an important empirical study of this thesis and provides evidence to the theoretic analysis. First of all, builds the econometric model ac-cording to the theoretical basis. Then, using the panel data PCSE method to esti-mate the parameters, and testing the theoretic hypothesis. After draw relevant con-clusions, this paper also made a further explanation and discussion.Chapter V presents some policy implementations, which is based on theoretical and empirical conclusions, to promote China's enterprises "going out" strategy.The contributions of this study are threefold. First, it distinguishes the types of China's outward FDI, pay more attention on the reversal outward FDI, and study its characteristics and motivation deeply, provides some evidence for the re-versal outward FDI from developing countries which is helpful to improve and develop the international FDI theory. Second, it summarizes the characteristics of China's reversal outward FDI, argues that the OFDI is actively seeking to enhance competitive advantage, and this paper attempts to build a theoretic mechanism that proves the developing countries MNUs could acquire competitive advantage by the reversal outward FDI. Third, it investigates the policies and measures to pro-mote the outward FDI, provides some relevant supporting policies for both Chi-nese policy-makers and the enterprises.