The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 4

In 1985, China's outward FDI reached US $629 million, almost five times that of the previous year, and, by 1992, it further increased to US $4 billion (See Table 2.1). Compared with the previous stage, Chinese overseas investments tapped into a more diversified range of industries at this period. A noteworthy phenomenon was that many manufacturing firms became involved in outward FDI, which had previously been dominated by the foreign trade corporations (Cai, 1999).

Third stage: 1993–1998

MOFTEC started preparing administrative measures on overseas Chinese enterprises in 1993. At this stage, a robust advance in the performance and integration of overseas investment activities by Chinese MNCs occurred. The number of overseas businesses owned by Chinese firms grew rapidly, as did the types of industries involved and the number of foreign countries that were entered. In 1991, China had around 2,000 overseas enterprises located in 93 countries. Remarkably, by the end of 1997, the figure had increased to 5,356 overseas enterprises, dispersed across more than 140 countries (Warner, et al., 2004).

Fourth stage: 1999–present

Since the end of the 1990s, the Chinese government issued a series of policy documents aimed to encourage firms to “go out” by simplifying the procedure of application and approval of foreign investment. China's policy on outward FDI also became increasingly formalized in this stage, and included the (1) 2004 Interim Administrative Measures on the Approval of Overseas Investment Projects (by the National Development and Reform Commission, NDRC); the (2) 2004 Circular on the Supportive Credit Policy on Key Overseas Investment Projects Encouraged by the State (by NDRC and the Export-Import Bank of China); and the (3) 2005 Provisions on Issues Concerning the Approval of Overseas Investment and Establishment of Enterprises (by MOFCOM) (UNCTAD, 2006).

The government's “going-out” policy initiatives and the increasingly formalized regulations led to a sharp rise in outward FDI from Chinese firms. At this stage, firms began to organize and structure their overseas investments proactively and systematically. There were many cases of successful Chinese overseas investments. For instance, Haier, the largest household appliances producer in China, set up a manufacturing site in South Carolina in the United States. The Wanxiang Group, one of the largest automobile parts producers in China, built a successful marketing network across Europe and America via its American subsidiary, Wanxiang American Corporation (Warner, et al., 2004).

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