Exporting National Champions: China’s OFDI Finance in Comparative Perspective
Since the 1950s, Korean and Japanese banks have loaned billions of dollars in loans to their “national champion” companies to encourage overseas investment. Now, Chinese state-owned banks have loaned billions to state-owned companies as part of China’s “Go Global” policy. While studies have compared China’s liberalization, inward foreign directing investment (FDI) attraction and export promotion policies to those of its “Asian Miracle” predecessors, Japan and South Korea, they have paid little attention to China’s public outward foreign direct investment (OFDI) lending.
In a new working paper, Amos Irwin and Kevin Gallagher created a database of Chinese finance for OFDI to examine the extent to which Chinese development banks have financed the globalization of China’s “national champion” firms.
Main findings:
- Irwin and Gallagher estimate the total value of China’s OFDI finance from 2002-2012 at $140 billion.
- China’s lending, as a percentage of total OFDI, is roughly three times higher than Japan, the previous global leader in OFDI finance.
- Over 95 percent of loans go to state-owned enterprises (SOEs) rather than private companies.
- The mining and oil sector received 80 percent of the loans, followed by infrastructure and manufacturing.
- China’s lending goes overwhelmingly toward natural resource acquisition, similar to Japan and South Korea at their earlier development stages, but to a much greater degree.
- Unlike Japan and South Korea, China’s market entry has more to do with developing project expertise and supporting exporting, than with tariff hopping or outsourcing industries fading on the mainland.
- Two major reasons for China’s high, 31 percent ratio of OFDI lending to total OFDI are:
- China has a greater incentive to give OFDI loans than Japan or Korea, as its borrowers are state-owned, meaning it has more power to easily dictate how borrowers use the money.
- China has a greater capacity to give OFDI loans because it has significantly higher savings and foreign exchange reserves than Japan or South Korea, both today and during similar development stages.
Irwin and Gallagher argue that China’s own OFDI lending better represents the government’s motives and expect Chinese OFDI to greatly increase as more companies follow the Chinese state’s enthusiastic lead.