David Kelly has recently called the attention of Minjian International members to the writings of Ma Yu, head of the FDI department at the research institute of the Chinese Ministry of Commerce. Ma Yu is a fierce critic of the overseas investments and acquisitions of state enterprises, which he dismisses wholesale as suffering from “state-enterprisitis” and unsuited to survive in a market environment. He is primarily interested in investments in rich countries such as the US and Australia. One representative piece from Southern Weekend is here.
A more official-sounding analysis, from the Center for China’s Overseas Interests at Shanghai International Studies University (Wang Duanyong, “The Assessment Report of China’s Outward FDI Risk: 2008-2009,” CCOI Working Paper No. 1, 2010), essentially confirms this pessimistic view. By 2009, China’s FDI outflow reached $200bn, but about 80% of this has been to Hong Kong, Macau, the Cayman Islands or the Virgin Islands, meaning a manoevre to reduce taxation for a company operating within China rather than actual investment. Of the remaining 20%, the majority remains in Asia, but investment in Africa and the Pacific Islands has grown rapidly, particularly in 2008.
Both Wang and Ma point out that the foreign assets “scooped up” by Chinese companies during the 2008-09 recession have largely lost value. While Ma discusses mostly resources investments, Wang analyses the reasons for the failure of Shanghai First Automotive’s acquisition of a controlling stake in the Korean carmaker Ssangyong, which, in 2004, was feted as the first overseas venture of the Chinese auto industry. After five years of losses and an unrelenting conflict with the trade union (which accused the Chinese company of siphoning away Ssangyong’s technology and reducing it to a low-price brand), a reorganisation resulted in the reduction of Shanghai First’s packet from 51% to 11%. This failure went unnoticed in mainstream Western media, obsessed as they are by China’s investments in African resources. Nor have we heard much about the television brand TCL since its equally unsuccessful acquisition by a Chinese company. Like Ma, Wang considers Chinese state enterprises’ lack of strategy the root cause of the poor record, and pleads for a greater role for private enterprises, which have learned more flexibility in their domestic operations.