1. According to United Nations Conference on Trade and Development (UNCTAD), foreign direct investment (FDI) is defined as an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy (that is, foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. FDI comprises three components: equity capital, reinvested earnings and intra-company loans. (UNCTAD, World Investment Report 1997: Transnational Corporations, Market Structure and Competition Policy (New York & Geneva: United Nations, 1997), p. 295)Google Scholar This definition of FDI is adopted in this article.

2. China's annual FDI inflows since 1993 were $28 billion for 1993, $34 billion for 1994, $36 billion for 1995, $42 billion for 1996 and over $60 billion for 1997. The figures for 1993–96 are from UNCTAD, World Investment Report 1997Google Scholar, Annex table B.I, pp. 303–307; also from IMF, Balance of Payments Statistics Yearbook, 1990–1997 (Washington, D.C.: International Monetary Fund).Google Scholar The figure for 1997 comes from Renmin ribao (People's Daily), 17 01 1998, p. 2.Google Scholar

3. UNCTAD, World Investment Report 1997, pp. 319–324.Google Scholar According to James Xiaoning Zhan, there are two main sources of data on Chinese outward FDI, the IMF and the Ministry of Foreign Trade and Economic Cooperation (MOFTEC). However, the data-collection and estimation methods adopted by these institutions are so different that there are large discrepancies in the values reported. The MOFTEC data are based on official approval figures for initial outflows rather than actual investment, thus excluding reinvested earnings by Chinese foreign affiliates that have passed the original screening process. MOFTEC also does not screen many other outward FDI projects. Furthermore, numerous small investment projects have simply escaped the screening process. Hence the MOFTEC data significantly underestimate China's actual FDI outflows. The IMF estimates are based on sample data collected by the State Administration of Foreign Exchange Control of China (SAFEC) from its offices in various provinces. They represent actual capital movements and cover equity capital, reinvested earnings and inter-company loans. For this reason, the IMF data are adopted by UNCTAD's report, on which this article relies. For a detailed discussion on the issue, see Zhan, James Xiaoning, “Transnationalization and outward investment: the case of Chinese firms,” Transnational Corporations, Vol. 4, No. 3 (12 1995), p.72.Google Scholar

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5. Jun, Wang, “An analysis of the total amount and structure of the capital outflows from China,” Reform, No. 5 (1996), p. 94.Google Scholar

6. Guoqiang, Long, “How to prevent capital flight,” China Economic Times, 14 05 1997, p.4.Google Scholar

7. Jun, Wang, “An analysis,” p. 93.Google Scholar

8. For a detailed discussion of illegal outflows of Chinese capital, see ibid. and Guoqiang, Long, “How to prevent capital flight.”Google Scholar

9. It is interesting to note that while it is now becoming possible to have a growingly unified economic entity among multiple sovereign states – as is happening in European Union – it may also be acceptable to have two or more independent economic entities under one sovereignty – as now in the China-Hong Kong relationship.

10. Zhan, , “Transnationalization,” p. 68.Google Scholar

11. Almanac of China's Foreign Economic Relations and Trade, cited from United Nations Centre on Transnational Corporations (UNCTC), World Investment Directory 1992: Foreign Direct Investment, Legal Framework and Corporate Data, Volume I: Asia and the Pacific (New York: United Nations, 1992), p. 69.Google Scholar

12. Choosin, Tseng, “Foreign direct investment from the People's Republic of China,” in de Bettignies, Henri-Claude (ed.), Business Transformation in China (London & Boston: International Thomson Business Press, 1996), p. 91.Google Scholar

13. Zhang, Hai-Yan and Van Den Bulcke, Danny, “China: rapid changes in the investment development path,” in Dunning, John H. and Narula, Rajneesh (eds.), Foreign Direct Investment and Governments: Catalysts for Economic Restructuring (London: Routledge, 1996), pp. 404–405.Google Scholar

14. Tseng, , Choosin, , “Foreign direct investment,” pp. 91–92.Google Scholar

15. Taiwan is another economy that has experienced very rapid development of outward FDI around the same period, largely due to the economic restructuring on the island. On the other hand, the rapid increase of Hong Kong's FDI outflows in the first half of the 1990s was at least partly due to the effects of the prospective handover of sovereignty over the territory from Britain to China (see Table 2). It is interesting to note that the three constituencies of what is now widely called the Greater Chinese Community (China, Taiwan and Hong Kong) have now held the lion's share of outward FDI originating from the developing world, although a large sum of their FDI is directed among these economies themselves. If Singapore is also considered as a member of this Chinese community, the share is even larger.

16. The data for 1983 are drawn from UNCTC, World Investment Directory 1992, pp. 76–77 and 79Google Scholar; the data for 1994 are from UNCTAD, World Investment Report 1995, Transnational Corporations and Competitiveness (New York: United Nations, 1995), p. 56.Google Scholar The similar data for 1994 are also found in Shanghai Foreign Trade Association, New Laws and Regulations Regarding External Economic Activities and Foreign Trade (Shanghai: Fudan University Press, 1995), p.158.Google Scholar

17. China Economic Times, 4 07 1998, p. 3.Google Scholar

18. Renmin ribao, 21 10 1997, p. 14.Google Scholar

19. UNCTAD, World Investment Report 1997, Table 1.8, pp. 32–33.Google Scholar

20. Zhan, , “Transnationalization,” p. 73.Google Scholar

21. China's foreign exchange reserves have steadily increased for the past two decades, from $0.8 billion in 1979, to $ 11.1 billion in 1990, and $ 139.9 billion in 1997 (State Statistical Bureau, PRC, China Statistical Yearbook 1998 (Beijing: China Statistical Publishing House, 1998), p. 670).Google Scholar

22. Zhang, and Bulcke, , “Rapid changes,” p. 405.Google Scholar For a survey on those provinces and cities that are among top overseas investors, see Choosin, Tseng, “Foreign direct investment,” pp. 86–91.Google Scholar

23. UNCTAD, World Investment Report 1995, p. 57.Google Scholar

24. Zhan, , “Transnationalization,” p. 77.Google Scholar

25. UNCTAD, World Investment Report 1995, p. 56.Google Scholar

26. UNCTAD, Sharing Asia's Dynamism, 1996, p. 16.Google Scholar

27. Chan, Hing Lin, “Chinese investment in Hong Kong: issues and problems,” Asian Survey, Vol. 35, No. 10 (10 1995), p. 941.CrossRefGoogle Scholar Some scholars even estimate that China's investment in Hong Kong has exceeded Hong Kong's investment in China. See Lin, Danming, “Hong Kong's China-invested companies and their reverse investment in China,” in Child, John and Lu, Yuan (eds.), Management Issues in China: Volume II, International Enterprises (London: Routledge, 1996), p.168.Google Scholar For a discussion of the historical development of post-1949 Chinese investment in Hong Kong, see Choosin, Tseng, “Foreign direct investment,” pp. 95–108.Google Scholar

28. Beijing Review, Vol. 40, No. 26, (30 06–6 07 1997), p. 19.Google Scholar

29. The figure of over 60% for the services sector as a whole is taken from Zhan, , “Transnationalization,” p. 74; the figure of over 50% for trading is from UNCTAD, World Investment Report 1995, p. 56.Google Scholar

30. Bolung, Jiang and Zhenfang, Zou, Foreign Investment of Chinese Enterprises (Beijing: Economic Science Press, 1996) p. 15.Google Scholar

31. Zhan, , “Transnationalization,” p. 75.Google Scholar But according to UNCTAD this figure is 30%, see UNCTAD, World Investment Report 1995, p. 56.Google Scholar

32. Zhan, , “Transnationalization,” pp. 75–76.Google Scholar

33. UNCTAD, World investment Report 1995, p. 56.Google Scholar

34. Zhan, , “Transnationalization,” p. 76.Google Scholar

35. UNCTAD, World Investment Report 1995, p. 56.Google Scholar

36. Zhan, , “Transnationalization,” pp. 81–82Google Scholar; Jiang, and Zou, Foreign Investment, pp. 15–16.Google Scholar

37. Long, Luo, Yonghong, Chen and Rongzhen, Yang, “Some considerations on the development of China's transnational operations,” World Economy, No. 5 (1993), p. 47.Google Scholar

38. Shanghai Foreign Trade Association, New Laws and Regulations, pp. 158–163.Google Scholar Also see Gang, Ye, “Chinese transnational corporations,” Transnational Corporations, Vol. 1, No. 2 (08 1992), p. 131.Google Scholar For successful examples of Chinese TNCs raising capital to finance their overseas projects (CITIC Canada, CITIC Australian Pty Ltd, etc.), see Zhan, , “Transnationalization,” pp. 81–82Google Scholar and Yuesheng, Li et al. , A Practical Handbook of Overseas Investment (Shanghai: Far East Publishing House, 1993), pp. 83–87.Google Scholar

39. Jiang, and Zou, , Foreign Investment, p. 20.Google Scholar

40. According to Transnational Corporations and Management Division, Department of Economic and Social Development of the United Nations, there are five primary types of FDI undertaken by TNCs from developing countries, that is, market-seeking FDI, export-oriented FDI, resource-seeking FDI, technology-seeking FDI and efficiency-seeking FDI. UN-TCMD, Transnational Corporations from Developing Countries: Impact on Their Home Countries (New York: United Nations, 1993), pp. 11–14.Google Scholar

41. For a discussion of the current process of structural transformation of the Chinese economy, see Ding, Li, “China is now in the crucial period of structural transformation,” China Economic Times, 23 06 1998, p. 7.Google Scholar

42. This motive of market expansion is well explained by the empirical data collected by Gang, Ye, “Chinese transnational corporations,” p. 128Google Scholar; and Zhang, Hai-Yan and Van Den Bulcke, Daniel, “International management strategies of Chinese multinational firms,” in Child, John and Lu, Yuan (eds.), Management Issues in China: Volume II, International Enterprises (London: Routledge, 1996), p. 150.Google Scholar

43. At present, labour and special technique export, which has traditionally been the country's major sources of earning foreign currency, is particularly important for China because it can help relieve the increasingly serious unemployment burden brought about by the large-scale restructuring of the state-owned enterprises.

44. State Statistical Bureau, PRC, China Statistical Yearbook, 1998, p. 623.Google Scholar

45. Ibid. p. 254.

46. Jiang, and Zou, , Foreign Investment, pp. 18–19.Google Scholar

47. Renmin ribao, 16 09 1997, p. 1.Google Scholar

48. BBC, Summary of World Broadcasts, Part 3: Asia Pacific (SWB)Google Scholar, 3034 and 3037, cited from The China Quarterly, No. 152 (12 1997), p. 922.Google Scholar

49. Jiang, and Zou, , Foreign Investment, p. 19.Google Scholar

50. Gang, Ye, “Chinese transnational corporations,” p. 131.Google Scholar

51. Jiang, and Zou, , Foreign Investment, pp. 20–21.Google Scholar

52. UNCTAD, World Investment Report 1995, p. 56.Google Scholar

53. Some Chinese companies have also raised capital through similar means in other major international financial markets, such as New York, Tokyo, etc.

54. UNCTAD, World Investment Report 1995, pp. 57–58Google Scholar; Choosin, Tseng, “Foreign direct investment,” pp. 103–108.Google Scholar For a detailed discussion of the reverse investment in China by the Chinese companies in Hong Kong, see Lin, Danming, “Hong Kong's China-invested companies,” pp. 165–182.Google Scholar

55. UNCTAD, World Investment Report 1995, pp. 56–57Google Scholar; Choosin, Tseng, “Foreign direct investment,” pp. 105–106.Google Scholar

56. UNCTAD, World Investment Report 1995, p. 330.Google Scholar For more important Chinese investment projects in Hong Kong, see Choosin, Tseng, “Foreign direct investment,” pp. 103–104.Google Scholar

57. China Economic Times, 22 05 1997, p. 1.Google Scholar This figure (1,800) represents those that have received formal approval from the relevant authorities of the Chinese government. However, an even larger number of Chinese companies have registered in Hong Kong without obtaining the formal approval of the domestic authorities. Some scholars estimate that the actual figure of Chinese companies in Hong Kong is around 5,000. See Lin, Danming, “Hong Kong's China-invested companies,” p. 167.Google Scholar

58. UNCTAD, World Investment Report 1996: Investment, Trade and Investment Policy Arrangements – Overview (New York & Geneva: United Nations, 1996), p. 12.Google Scholar

59. Zhan, , “Transnationalization,” p. 68.Google Scholar

60. Ibid. p. 69; Yuesheng, Li et al. , A Practical Handbook, pp. 123–130.Google Scholar

61. In practice, many investment projects simply escaped the screening process. Besides, the screening process is largely limited to original investments, so that reinvested earnings by Chinese foreign affiliates that have passed the original screening process are usually not subject to subsequent further screening. Zhan, , “Transnationalization,” p. 69.Google Scholar

62. Jiangguo, Peng, Utilization of Foreign Capital and Overseas Investment (Beijing: Chinese Youth Publishing House 1993), pp. 203–210.Google Scholar

63. Zhan, , “Transnationalization,” pp. 69–70.Google Scholar

64. In general, all foreign affiliates have been exempted from taxes for the first five years of their existence. After this period, foreign affiliates pay taxes on earnings of 20%.

65. These loans are especially provided to overseas projects of resources extraction and investment projects in the manufacturing/processing which require a large amount of initial capital. For example, those Chinese investment projects in ocean fisheries, forestry and minerals in Western Africa, Alaska, Brazil and Australia rely on such national bank loans sponsored by the government.

66. Yitang, Sheng et al. (eds.), Sino-U.S.-Euro. Trading Almanac (1995–1996), China 1 (New York: Sino-U.S. Information Inc./Shanghai Jiao Tong University Press, 1995), pp. 75–76.Google Scholar

67. Zhan, , “Transnationalization,” p. 70.Google Scholar

68. BBC, SWB, 2623, cited from The China Quarterly, No. 147 (09 1996), p. 1024.Google Scholar

69. UNCTAD, World Investment Report 1995, p. 331.Google Scholar

70. The figure is based on the data from United Nations Centre on Transnational Corporations and International Chamber of Commerce, Bilateral Investment Treaties, 1959–1991, (New York: United Nations, 1992), p.18Google Scholar; Dolzer, Rudolf and Stevens, Margrete, Bilateral Investment Treaties (The Hague: Martinus Nijhoff Publishers, 1995), Annex II, C, pp. 291–294Google Scholar; and UNCTAD, World Investment Report 1997, Annex table B.10, pp. 366–369.Google Scholar

71. Jiang, and Zou, , Foreign Investment, p. 16.Google Scholar

72. Ibid. p. 17.

73. Ibid. pp. 16–18. For an official study of these problems, see Keqin, Chen et al. , “On some issues regarding the management of overseas enterprises,” Foreign Economic Relations and Trade, No. 21 (27 05 1998), pp. 2–11.Google Scholar

74. Chan, Hing Lin, “Chinese investment in Hong Kong,” p. 951.Google Scholar

75. Currently there are 239 such trust and investment companies in China. Business Week, 28 12 1998, p. 27.Google Scholar

76. It is widely reported that more troubled companies should be on the waiting list for bankruptcy. However, as Beijing's refusal of guaranteeing the bankrupt GITIC's debt severely shook the confidence of the foreign financial community over China, bringing about very negative consequences on future inflow of foreign capital, the Chinese government has now become more cautious over letting companies go bankrupt. Instead, Beijing is currently trying to work out some restructuring plan to help companies in trouble out of the crisis. See Business Week, 15 03 1999, pp. 18–19.Google Scholar

77. John Dunning's investment development path model was first put forward in 1979. It was later modified by John Dunning and Rajneesh Narula. For a summary of this analytical model, see Dunning, John H. and Narula, Rajneesh, “The investment development path revisited: some emerging issues,”Google Scholar in Dunning, and Narula, , Foreign Direct Investment and Governments, pp. l–41.Google Scholar According to this model, countries in Stage 3 are marked by a gradual decrease in the growth rate of inward FDI and an increase in the growth rate of outward FDI that results in improving net outward investment (NOI); Stage 4 is reached when a country's outward FDI stock equals or exceeds the inward FDI stock and outward FDI continues to grow faster than inward FDI; and finally in Stage 5 the NOI position of a country first falls and later fluctuates around the zero level while at the same time both inward and outward FDI are likely to continue to increase. Developed countries are currently approaching this fifth stage.

78. For both geopolitical and geoeconomic considerations the Chinese government has repeatedly pledged not to devaluate the Chinese yuan. These considerations are clearly expressed in a column article, “Play well the card of RMB,” in China Economic Times, 26 06 1998, p. 7.Google Scholar

79. The modern history of the world economy shows that later comers usually complete various development stages much faster than their predecessors.

80. UNCTAD, World Investment Report 1997, Annex table B.2, p. 316.Google Scholar