Exporting National Champions:

China’s OFDI Finance in Comparative Perspective

GEGI Working Paper Series

By Amos Irwin and Kevin P. Gallagher 
June 2014

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Scholars have compared China’s liberalization, inward FDI attraction, and export promotion policies to those of its “Asian Miracle” predecessors to assess China as a ‘developmental state.’ We build on that literature by drawing a new but similar comparison: the extent to which Chinese development banks have financed the globalization of China’s ‘national champion’ firms.  We focus on the role of state finance in promoting China’s outward foreign direct investment (OFDI) in comparative perspective. In order to answer this research question, we created a database of Chinese finance for OFDI and compared our results to the existing literature on previous developmental states.  We estimate the total value of China’s OFDI finance from 2002-2012 at $140 billion. As a percentage of total OFDI, China’s lending is roughly three times 55% higher than Japan, the previous global leader in OFDI finance. Like Japan and South Korea at earlier developmental stages, China’s lending also goes overwhelmingly toward natural resource acquisition, though to a much greater degree. Unlike Japan or Korea, we find that China’s market entry has more to do with developing project expertise and supporting exports than it does with tariff-hopping or outsourcing industries that are fading on the mainland. We identify two major reasons for China’s high (31%) ratio of OFDI lending to total OFDI. First, China has a greater incentive to give OFDI loans than Japan or Korea ever did because its borrowers are state-owned so it can more easily dictate how they use the money. Second, China has a greater capacity to give OFDI loans because it has significantly higher savings and foreign exchange reserves than Japan and Korea, both today and especially during equivalent developmental stages.