The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 3

Several studies have traced the evolution of the internationalization process of Chinese firms (e.g., Cai, 1999; Tseng, 1994; Warner, et al., 2004; Yang, Jiang, Kang, & Ke, 2008). Although slightly different classifications of stages of development of Chinese MNCs exist (e.g., Warner, et al., 2004; Yang, et al., 2008), we identified four stages in the growth of Chinese MNCs in light of the promulgation and implementation of laws and regulations that govern China's overseas investments. A brief description of each of the four stages is as follows.

First stage: 1979–1983

Chinese outward FDI did not start to develop until the government's adoption of its “open-door” policy at the end of the 1970s. During this early stage, China's outward FDI was insignificant as a foreign economic activity (Cai, 1999). Thus, China's annual FDI outflow had a modest increase from US $35 million in 1980 to US $93 million in 1983 (See Table 2.1). The most common form of investment was to set up representative trade offices in designated overseas markets (Warner, et al., 2004). Early outward FDI activities were mainly conducted by centrally controlled state-owned enterprises, especially those long-established corporations specialized in foreign trade (Cai, 1999). During this period, all the outward FDI, no matter of what form or size, needed to be reported to and approved by the State Council of the People's Republic of China. There existed no specific laws regulating outward FDI at that time.

Table 2.1 China's outward FDI, 1979–2006 (US $ million)

The Effects of the Institutional Environment on the Internationalization  of Chinese Firms

Sources: Various sources

Main English sources include: United Nations Conference on Trade and Development (UNCTAD); United Nations Centre on Transnational Corporations (UNCTC)
Main Chinese sources include: Ministry of Commerce of the PRC (MOFCOM); State Administration of Foreign Exchange (SAFE)

Second stage: 1984–1992

The second stage was characterized by the codification of a body of regulations, for the first time, promulgated by the state, to govern overseas operations and investments. In May 1984, the former Ministry of Foreign Trade and Economic Cooperation (MOFTEC) issued a Circular on the Approval Principle and Procedure for overseas business and investment. In the following July, MOFTEC released a set of Interim Provisions on the Approval Procedure and Administrative Measures on Establishing Overseas Non-trading Joint Ventures. Nolan (2002) noted that the inception of such a regulatory regime coincided with the rapid and diversified growth of external activities by China's MNCs.

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