Global Manufacturing and Secondary Innovation in China. Xiaobo Wu

       Diagram 1-7 Outbound foreign direct investment of China’s manufacturing industry

      Data Source: 2015 Statistical Bulletin of China’s Outward Foreign Direct Investment issued by the Ministry of Commerce, National Bureau of Statistics and State Administration of Foreign Exchange.

      Since the Reform and Opening-up, Chinese manufacturing firms have gone global and made recognized achievements in their cross-border operations. In general, the outbound foreign investment made by China’s manufacturing industry has the following characteristics:

      (1) Continuously expanding investment coverage. With the continuous advancing of the Belt and Road Initiative, the outbound foreign investment of China’s manufacturing industry has an increasingly growing market, now expanding to six continents including Asia, Europe, Africa, North America, South America and Oceania.

      (2) Relatively fast-growing total investment. The total investment increased by 31 times from USD 620 million in 2003 to USD 19.99 billion in 2015.

      (3) The emergence of many large conglomerates with the capabilities for overseas investment, cross-border production, and R&D and sales, including Huawei Technologies Co., Ltd. and Zhejiang Geely Holding Group Co., Ltd., etc. These companies have grown into large comprehensive companies engaged in cross-regional and cross-border operations.

      (4) Its proportion in China’s total outbound foreign investment remaining comparatively low. The ODI of China’s manufacturing industry is far lower than that of the service industry and its proportion in the total ODI is declining, also lower than that of Japan, the US and Germany (see Table 1-2).

      There are still many problems with the outbound investment of China’s manufacturing industry, i.e, the shortage of cross-border management talent and lack of limited technology superiority.

       Table 1-2 Outbound direct investments by China’s manufacturing industry

      Data Source: Statistical Bulletin of China’s Outward Foreign Direct Investment issued by the Ministry of Commerce, National Bureau of Statistics and State Administration of Foreign Exchange in 2003–2015.

1.2.3 Increasingly diversified investment and steadily growing cross-border M&As

      With the continuously deepening globalization and accumulated management experience, Chinese companies have gradually diversified their ways of outbound foreign investment. In light of their own development conditions and investment motivations, they tried to facilitate overseas expansion through a variety of methods including Greenfield investment, international joint ventures and M&As, among which M&A is increasingly preferred by investors. Since China’s accession to the WTO, Chinese companies have “gone global” and conducted M&As outside China actively. They have become the important nodes in the multi-interactive network of international market. This will also be one of the important ways for Chinese companies to participate in global economic governance. Chinese firms’ overseas M&As sprouted in 1984–1992. In 1993–2000, horizontal M&As between peer companies in the same industry started to appear, along with vertical M&As between downstream and upstream companies of an industrial chain. There were also more hybrid M&As between companies from different industries or industrial chains as well as other transactions of mixed types. The specialization degree of these companies significantly increased, but the total M&A volume was still relatively small. After joining the WTO, China’s overseas investment has moved into a stage of surging development in 2001–2008. Cross-border M&As gradually rose and had greater scale and quantity. There were many representative cases, such as Lenovo’s acquisition of IBM’s personal computer division in 2004 and Haier’s acquisition of US Maytag’s equity in 2005. Finally, the substantial devaluation of overseas assets caused by the global financial crisis in 2008 brought great opportunities and challenges to Chinese companies. To shake off the impact of financial crisis, all countries relaxed the regulation over M&As. This attracted a large number of Chinese companies to conduct large overseas M&As. As shown in Diagram 1-8, China’s overseas M&A transaction volume increased significantly in 2008. At the same time, despite occasional declines in the following years, it sustained an upward trend. For China’s cross-border M&As in 2004–2015, please refer to Table 1-3.

       Table 1-3 China’s cross-border M&As, 2004–2015