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Canada in China GOING GLOBAL

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Canada in China GOING GLOBAL 360114cov 11/21/05 6:20 PM Page 1 2005-5 canada in chinaGOING GLOBAL The Why, When, Where and How of Chinese Companies’ Outward Investment Intentions Kenny Zhang, Research Analyst, Asia Pacific Foundation of Canada 360114cov 11/21/05 6:20 PM Page 2 ISSN 1706-919X – print ISSN 1706-9203 – online © Copyright 2005 by Asia Pacific Foundation of Canada. All rights reserved. Canada in Asia may be excerpted or reproduced only with the written permission of the Asia Pacific Foundation of Canada. November, 2005 CONTENTS ACRONYMS 2 Satisfaction with Current ODI Performance 18 3.3 FUTURE ODI INTENTIONS OF EXECUTIVE SUMMARY 3 CHINESE COMPANIES 19 Short Term vs. Medium Term 19 1 INTRODUCTION 5 The Development of Government Does Company Size Matter? 19 Policy on Overseas Investment 6 Are SOEs More Likely To Invest? 19 Five Improved Policy Areas to Form of Future ODI 21 Facilitate Overseas Investment 7 Fields of Future ODI Activities 21 Industry Sectors of Future ODI 22 2 CHINA’S OUTWARD DIRECT Location of Future ODI 22 INVESTMENT PERFORMANCE 11 Motivation for Future ODI 22 ODI Flows and Stocks 11 3.4 IS CANADA A DESTINATION Major Players 11 FOR CHINESE ODI? 24 Regional Distribution 11 Perception of Canada 24 Sectoral Distribution 12 Chinese View of Attractive Investment Driving Forces 13 Sectors in Canada 24 Future Trends 13 Key Considerations on Investing in Canada 24 Larger Companies More Positive on 3 RESULTS OF APF CANADA/CCPIT SURVEY 14 Investing in Canada 24 3.1 DESCRIPTION OF SAMPLE 14 SOEs are More Likely to Invest in Canada 25 Geographic Representation 14 Breakdown by Company Size 14 4 CONCLUSION 26 Breakdown by Ownership Structure 14 Breakdown by Industry Sector 14 ANNEXES 3.2 CURRENT ODI BY CHINESE COMPANIES 16 A. APF Canada/CCPIT Survey Website 29 Involvement in Overseas Business Operations 16 B. Questionnaire on Investment Intentions Timing of Current Outward Direct Investment 16 of CCPIT Members 30 Current ODI by Region 16 C. Outline of Major Chinese Overseas ODI by Form of Business 17 Corporate Investors 35 Fields of Business Activity 17 D. Summary of China’s Investments in Canada 39 Type of ODI 17 E. Notes 42 Ownership Structure of ODI 17 F. References 44 Driving Forces of Current ODI 18 – 1 – ACRONYMS APF Canada Asia Pacific Foundation of Canada CAITEC The China Academy of International Trade and Economic Cooperation (of the Ministry of Commerce) CCPIT The China Council for The Promotion of International Trade EID/CCPIT Economic Information Department, The China Council for The Promotion of International Trade FDI Foreign Direct Investment MOFCOM Ministry of Commerce of China MOFTEC Ministry of Foreign Trade and Economic Cooperation (now renamed MOFCOM) NBS National Bureau of Statistics of China NDRC National Development and Reform Commission of China ODI Outward Direct Investment SAFE State Administration of Foreign Exchange of China SOE State-owned Enterprise UNCTAD United Nations Conference on Trade and Development WTO World Trade Organization – 2 – EXECUTIVE SUMMARY This report presents the results of a survey The main findings of the survey include: conducted jointly by the Asia Pacific Foundation of Only 14% of respondent companies have had Canada (APF Canada) and The China Council for the overseas investments, and more than half of the Promotion of International Trade (CCPIT) in May- ODI has gone to Asia. Setting up representative June 2005. The objective of this survey is to gain a and sales offices is the most common vehicle for better understanding of outward direct investments undertaking ODI. (ODI) by Chinese companies under the government’s Go Global strategy. More specifically, Over 60% of existing ODI was undertaken through it aims to understand who intends to invest, where joint ventures, rather than as greenfield investment and why. or merges and acquisitions. Some 90% of Chinese ODI projects are wholly owned or predominantly The report also examines the development of China’s owned by Chinese investors (holding a 50.1% or more ODI since the liberalization of the economy began in stake). Nine-tenths of respondents are satisfied with 1978. It outlines the five stages in the evolution of their current ODI projects. government regulation of offshore investment leading up to the adoption of the Go Global policy now being 23% of respondents have the intention to increase, implimented. either substantially or moderately, their ODI within the next 12 months. This intention increases to over China’s overseas non-financial investment reached a 40% with a 2-5-year timeframe. record US$5.5 billion in 2004, up by 93% compared with the same period of 2003. By the end of 2004, Larger companies are more likely to undertake or cumulative overseas investment by China was close increase ODI relative to their smaller counterparts. to US$44.8 billion. Chinese investment into Canada in 2004 was just US$5.1 million. By the end of 2004, A majority (56%) of respondents do not have a clear some 5,163 Chinese enterprises had invested directly perception of the methods they will use to undertake in 149 countries or regions, covering 71% of the future ODI in the global market. countries or regions in the world Trading, manufacturing, and resource extraction, The APF Canada-CCPIT survey targets CCPIT’s member handling or processing are the top three business companies1 as the sample base to gain an insight into activities of Chinese companies that have the future investment intentions by Chinese entetrprises. An strongest intention to invest overseas in the future. access-controlled, web-based questionnaire2 was opened for response during the period 25 May-15 June, 2005. The top three industrial sectors of Chinese All companies that responded to the survey completed companies that are considering ODI expansion the questionnaire either directly or with assistance of the within 2-5 years are the automotive, food & EID/CCPIT. beverages and mechanical & electrical sectors. During the survey period, 311 responses were received Asia is the top target of respondents considering on the website. Eliminating some duplicated and future ODI expansion, followed by Europe and incomplete records left a total of 296 valid responses North America. Canada accounts for only 12-14% that were used for analysis in this report. of possible ODI expansion in the future. – 3 – The top three driving forces of existing Chinese ODI are: the business potential or expansion into global markets; the Chinese government’s Go Global policy and its related incentives; and the transparent and fair regulatory environment in investment destinations. The most important determinants of future Chinese ODI are: business potential or expansion prospects; security of investment; and a favourable tax system in the target market. Only 4% of respondent Chinese companies currently have investment projects in Canada; about 6% of respondents had considered investing in Canada, but eventually decided not to go ahead. 8.4% of total respondents are considering investing in Canada. About 14% of larger companies are considering investment in Canada, while only 7% of smaller ones are doing so. Publicly owned companies are more likely to start or increase their ODI in general, but SOEs are more interested in investment opportunities in Canada. More than 40% of respondents do not have a basic knowledge of sectoral investment opportunities in Canada. Respondent companies regard ICT, energy and biotech as the most promising sectors for investment in Canada. Respondents consider the following factors as the most important attractions for investment in Canada: 1. The quality of life in Canada is among the highest in the world; 2. Canada can access US and other key markets; and 3. Canada has abundant and reliable energy resources. – 4 – INTRODUCTION 1 China, it is widely acknowledged, is emerging as a global important source of foreign investment in the world. economic powerhouse. Much attention has been focused Some of this will certainly flow to Canada. on its economic growth which has been maintained at a remarkable average rate of over 9% annually for the past The prospect of China becoming a major source of two decades; its attraction to foreign direct investment foreign direct investment is greeted with a mixture of (FDI), which has seen it overtake the US as the world’s enthusiasm and concern around the world. Although top recipient of FDI; its trade expansion, which has FDI is now widely accepted as a net gain for receiving caused it to run huge surpluses with some of its major economies, some are still wary of being taken over by trading partners; and the rapid maturity of its market Chinese companies especially those backed by the state. which has seen the emergence of a large and relatively One particular fear is that China’s state-owned enterprises, affluent middle class. However, one aspect of China’s with a reputation for poor management transparency, rising economic power that is often overlooked — or is low productivity and lack of concern for worker rights, sometimes noticed with alarm — is the growth of China’s might “infect” companies that they invest in overseas. outward direct investment. China’s global hunt for energy resources has also raised concerns of national economic security in some of the Since the opening of its doors to the world in 1978, countries being targeted. China’s outward investment has grown dramatically, moving through several distinct stages. From almost These concerns are not groundless. But to a large extent, zero to a record US$5.5 billion invested offshore in the fears could be attributed to limited awareness of 2004, China is among the source countries with the Chinese ODI, because it is a new phenomenon and there fastest growing outward direct investment in the world. is a lack of research in this area.
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