Op-Ed Contributors

Is there a Chinese ODI model?

By Huang Yiping and Wang Bijun (China Daily)
Updated: 2011-04-26 08:00

Third, seeking a market is not a driving force for China's ODI. Neither the host economies' GDP nor their per capita GDP has any influence on China's ODI decision.

There are, therefore, clear differences between China's ODI and that of the developed economies. For China, high profits are not an obvious driving force. Instead, the international competitiveness of the advanced economies and the resource endowment of developing economies are more important for it.

The chief objective of China's ODI is to strengthen the competitiveness and sustainability of domestic production. Acquiring advanced technology, securing commodity supply or even facilitating exports are all ways of doing this.

"China's ODI model" may be transitional. As the Chinese economy develops further, its ODI behavior is likely to converge with that of the developed countries.

If wages keep rising rapidly, China may eventually move its textile, toys and travel goods factories to other low-cost countries. That investment would be more consistent with the market or low-cost-seeking motivations in the traditional foreign direct investment theory.

Again, if further liberalization of the financial industry triggers a rise in the cost of capital and a decline of the State sector, the importance of the "China ODI model" may also decline.

Still, an analysis of the "China model" could increase the understanding of the ODI behavior of other developing countries.

But there is much we don't yet know about Chinese ODI because of the lack of comprehensive company-level data and the problem of aggregate figures. So the current evidence is still very preliminary.

Huang Yiping is a professor of economics at China Center for Economic Research, Peking University and adjunct professor at Crawford School of Economics and Government, Australian National University. Wang Bijun is a doctoral scholar at Peking University and visiting scholar at Australia's Crawford School of Economics and Government.

(China Daily 04/26/2011 page9)