China’s outward FDI : drivers and future outlook.

Abstract

China has received much attention for its success as a recipient of foreign direct investment (FDI) over the past two decades. However, this “awakened dragon” has been showing signs of accelerating growth in terms of outward FDI lately, as though signaling to the world that it is competing to take charge on the other side of the FDI game. Major drivers behind the growing trend include the need to secure a global supply of raw materials and natural resources, acquiring strategic assets such as advanced technology, know-how and managerial skills and access to foreign markets. However, motives do not equate to success in FDI. China’s institutional environment has led to several implications for Chinese firms during outward FDI, including political and internal management issues, and comparative advantage in cost of capital. Success hinges on the capabilities and competitive advantages of Chinese firms. Taking into consideration the similar economic development as the past Japan and Korea, current trends and economic climate, China’s outward FDI is expected to continue growing especially in the natural resources, technology and services sectors.