Rationale of internationalization of China's national oil companies: seeking natural resources, strategic assets or sectoral specialization?

Abstract

The bulk of the existing literature emphasized that China's companies sought strategic assets (technology, brands and access to markets) through internationalization in order to overcome latecomers' comparative disadvantage, while some studies suggested that these firms went after natural resources to address China's rising oil imports. The third argument (which we coin the ‘sectoral strength’ hypothesis) suggested that the upstream firms in extractive business would seek natural resources, whereas downstream ones would seek strategic assets. In this study, we examine the rationale of main overseas investment deals (‘going out’) of China's two largest national oil companies during 2002–2010 which were also China's top two non-financial firms with the largest outward investment stocks during 2004–2010. We conclude that these deals can be best explained by the ‘sectoral specialisation’ hypothesis supplemented with a consideration for strategic assets.

Keywords::

• assets-seeking
• business
• China
• energy firms
• internationalization
• resources-seeking

Acknowledgements

Hongyi Lai acknowledges the support from the British Academy/Leverhulme Small Research Grant for data collection and analyses in this study.

Notes

^1. China National Offshore Oil Corporation (CNOOC) is not included. This firm has far smaller overseas investment compared to CNPC and Sinopec that are already included in the study. CNOOC is an upstream firm similar to CNPC. Given the main importance the study attaches to the amount of investment, the exclusion of CNCCO will not change the conclusion.

Additional information

Notes on contributors

Hongyi Lai

Hongyi Lai is Associate Professor at the School of Contemporary Chinese Studies, University of Nottingham, UK. His research on China's political economy covers national and local reform strategy, regional development, oil diplomacy and recently, the internationalization of China's energy firms.

Sarah O'Hara

Sarah O'Hara is Professor of Geography and Pro Vice Chancellor of University of Nottingham.

Karolina Wysoczanska

Karolina Wysoczanska is a PhD Candidate at the University of Nottingham, School of Contemporary Chinese Studies. In 2009 she graduated from the University of Nottingham where she received a master's degree in ‘Management in Contemporary China’.