China’s Outward Investment under “Hierarchical Steering” and “Grassroots Internationalisation”

Abstract

The debate on China’s outward investment largely focuses on its determinants: enterprises’ interests and the role of the Chinese state. However, what these approaches often tend to ignore is that China is not a unitary outward-investing country. Instead, some Chinese provinces have been able to become the major drivers of China’s outward investment and the investment outflows of these provinces emerge out of locality-unique contexts. This research looks at path-dependencies and encapsulates different provincial internationalisation trajectories to advance our understanding of China’s overseas engagement. In investigating two “success stories” of provinces with high investment outflows, Jiangsu and Zhejiang provinces, two different forms of provincial internationalisation based on locality-unique political, economic, and social conditions are detailed. While investment outflows from both provinces were facilitated by cultures of local manufacturing industries, their internationalisation paths are conceptualised as either “hierarchical steering” or “grassroots internationalisation.”

Key Words:

• China
• outward FDI
• path dependence
• networks
• state–business relations

Acknowledgements

The writing of this article was conducted at the Hertie School and at Freie Universität Berlin. I would like to thank Anna Belogurova, Maoliang Bu, Jelena Große-Bley, Genia Kostka, Yan Liu, Miranda Schreurs, Kyoung Shin, Zhikai Wang, and Yaning Zhang for very valuable suggestions and discussions during earlier stages of this research. I am also grateful to three anonymous reviewers and the editor of the Journal of Contemporary Asia for their very valuable comments on this article. I am equally thankful to the interviewees for their precious insights and time.

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes

1 This research uses official data from the Chinese Ministry of Commerce (MOFCOM) to provide a general picture on China’s outward investment patterns. However, data on Chinese outward FDI need to be treated with caution. This is because official statistics include data of investments directed towards offshore financial centres and tax havens, including Hong Kong, the British Virgin Islands, and the Cayman Islands. These investments might be redirected to China as inward FDI or may be further directed towards other countries. As a result, official statistics are usually biased in terms of investment volume as well as geographical and industrial composition. For more information related to data issues associated with Chinese outward FDI statistics, see Schüler-Zhou and Schüller (2009), Sutherland and Anderson (2015), and Sutherland, Hennart, and Anderson (2019).

2 This refers to non-financial outward FDI, which in 2019 encompassed 85% of China’s total outward FDI flows (MOFCOM, NBS, and SAFE 2020, 90).

3 Hong Kong is an important destination for investments from Chinese provinces. For instance, in 2016, 26% of Jiangsu’s total approved investment projects were directed to Hong Kong (see, for example, Jiangsu Bureau of Statistics, and Jiangsu Research Unit of the National Bureau of Statistics 2011–2017).

Additional information

Funding

Funding from the German Academic Scholarship Foundation (Studienstiftung des deutschen Volkes), and the German Academic Exchange Service (Deutscher Akademischer Austauschdienst, DAAD) is gratefully acknowledged.