Study On China's Foreign Direct Investment In Asean Countries

During the economic globalization and global industry structure adjustment, new international investment wave is flourishing. The rapid development of international direct investment is not only an important aspect of economic globalization, but also a great drive force for the development of the world economy. Facing such fierce international competition, every country must develop direct investment positively and establish international production systems so that the domestic industry structure can be adjusted effectively. In recent years, with the deepening of the economic globalization and the strengthening of China's economic growth, China is actively involved in foreign direct investment. Chinese government encourages and supports foreign direct investment and international operation from any sorts of conditional ownership enterprises in order to participate in the economic globalization.In the 21 century, the startup of China-ASEAN (short for Association of Southeast Asian Nations) free trade area has been the global focus. In November 2001, the leadership of China and ASEAN countries reached a consensus at the fifth "ten plus one" meeting which was held in Brunei. These countries agreed to build a China-ASEAN free trade area within ten years. Since 2002, China and ASEAN countries have begun to gradually cut mutual tariff on more than 7000 products and commodities. On January 1st,2010, China-ASEAN free trade area was officially started. The tariff on most of the products between China and the six original relatively developed ASEAN countries (Indonesia, Malaysia, Philippine, Singapore, Thailand and Brunei) has already been decreased to zero. By the end of 2015, the tariff between China and the new four ASEAN countries (Vietnam, Lao PDR, Myanmar and Cambodia) will be down to 0. After the completion of the free trade area, trade volume between China and ASEAN countries will account for 13% of the world's trade amount. China-ASEAN free trade area will become a huge economic area that covers eleven countries, a 1.9 billion population and a gross domestic product of 6 trillion. This is the largest free trade area in terms of population and the largest free trade area among all the developing countries.Facing such a large potential market, our enterprises should carry out outward investment strategy actively and utilize various resources within the ASEAN countries. Facing global opportunities and challenges, China should follow the world's economic development trend, and encourage our enterprises to invest in overseas markets to boost Chinese rapid economic development and upgrade industry structure. It is important to improve Chinese enterprises'international competency by developing timely and moderate foreign direct investment.With the development of bilateral relationship between China and ASEAN countries, mutual investment develops quickly. China has become one of the most important capital-inflow destinations. Meanwhile, China also invests a large number of capitals in some ASEAN members. Although mutual investment between them started so late and still didn't exert the whole potential power, along with the creation of ASEAN free trade area and the implementation of investment clause, mutual investment between China and ASEAN will make more progress, and bilateral economic relationship will be closer.ASEAN countries are near to China in location and share similar cultural environment and background. China and ASEAN countries have different advantages in resources, technology and industry structure, so each partner has a great many of cooperative opportunities. Economy development differs in different countries and industry structures present different characteristics. Investment from China to ASEAN countries mostly centralizes on the formal five countries whose economy and industry structure are comparatively reasonable. It is beneficial for Chinese enterprises to implement different types of investment according to different countries'structure and economic seedtimes so as to promote industry upgrade. However, the economic development, individual income, labor and natural resources, economic policies and other aspects are different in these ten ASEAN countries. They are in different levels. Therefore, we should differentiate them. Now, the investment industries and patterns have been diversified, but China's overall foreign direct investment is small and there is a big gap between the current situation and what the target of China-ASEAN free trade area should be. Therefore, this paper focuses on China's foreign direct investment in ASEAN countries, explores the motives and analyzes the challenges Chinese enterprises have to confront.The first chapter is introduction. It briefly introduces the research background and its practical implications.Chapter two gives a systematic description of China's foreign direct investment theories. To begin with, this chapter interprets some foreign direct investment theories for developing countries, especially for those newly-emerged industrialized countries. To be specific, they are marginal industry expansion theory, small scale technology theory, localized technology theory, technological innovation and industry upgrade theory. Besides, it also summarizes research results of China's study on foreign direct investment in ASEAN countries.Chapter three interprets the motives and status quo of China's foreign direct investment in ASEAN countries. During the cooperation between China and ASEAN countries, foreign direct investment has played a vital role. Although it is only an economic phenomenon, huge political and economic motives are behind it. In recent years, China and ASEAN countries have been in an unprecedented close relationship and the gradually developed bilateral cooperation makes them become dependent on each other. However, compared to the rapid trade development between China and ASEAN countries, foreign direct investment doesn't take the dominant role in the investment market, although the mutual investment between China and ASEAN ten countries has increased a lot. They both are not the main investment partner to each other. Not only is the investment amount between these two parties low, but also the investment industry is not balanced. It is shown in the following four aspects:small scale of China's overall FDI in ASEAN countries, unbalanced China's investment inflow and outflow, unbalanced China's investment location distribution and unbalanced China's investment industry distribution.Chapter four analyzes the advantages and disadvantages of China's investment in ASEAN countries. All the members in China-ASEAN free trade area belong to developing countries and China-ASEAN free trade area is the first regional free trade area in which China joins. For Chinese enterprises, the completion of this free trade area will bring more and more business opportunities. Firstly, a favorable political relationship between China and ASEAN countries provides a solid foundation for regional investment. Secondly, since financial crisis in 1997, all the ASEAN countries have recognized that China is a more reliable partner than any other countries in the world and China can meet the needs of ASEAN countries in many aspects. Thirdly, ASEAN countries are near to China in location and share similar cultural environment and background. China and ASEAN countries have different advantages in resources, technology and industry structure, so each partner has a great many of cooperative opportunities. Fourthly, China and ASEAN countries have different characteristics in resources composition and industry structure. They share a strong complementarity in many products. This becomes the direct drive force for Chinese enterprises exploring in ASEAN market.Although this is a big opportunity for China's enterprises to invest in ASEAN countries, some problems still prevent them from entering the ASEAN market. These problems include problems not only from ASEAN countries, but also from domestic market. Problems from ASEAN countries include:Firstly, political risks. Secondly, infrastructures such as roads, bridges, electric power and telecommunications in many ASEAN countries are very backward. Thirdly, the soft investment environment is not as good as what is expected. Fourthly, China's enterprises are facing with great pressure brought by a complicated world economic and political situation. Problems from domestic market include:Firstly, the investment amount is low and the economic scale is not formed. Secondly, enterprises know little of ASEAN markets and information channel is not transparent. Thirdly, private enterprises have difficulty in financing. Fourthly, the market order is not regulated.Chapter five is aimed to seek a series of effective measures from two aspects to avoid possible risks in foreign direct investment, based on the analysis of self shortage and outside threats in the process of foreign direct investment. In the first place, China should provide macro guarantee strategy. When Chinese enterprises carry out the outward investment strategy, the relevant government section should deal with the enterprises'investment behavior from a high strategic perspective. The government should guide, coordinate, supervise, support and promote the enterprises to go to the ASEAN market smoothly from the country's interests through regulations, policies and relevant measures based on the market economic rules. In the second place, it provides suggestions on industry choice in ASEAN countries. Firstly, resource development industry should be the precaution industry of China's foreign direct investment to ensure China's energy security. Secondly, labor-intensive industry and applicable mature technology should be the leading industry. China should transfer these industries into ASEAN countries as soon as possible to upgrade domestic economic industry structure. Thirdly, high-tech industry should be strengthened. In the current world patterns, high-tech industry has already become the new global focus. Fourthly, service trade should be, developed. The global industry structure shows the trend from industry economy to service-oriented economy. China should also follow the trend and seize the opportunity to develop service industry. The last chapter of this thesis sums up the status quo of China's foreign direct investment in ASEAN countries, and points out the reference implications for China's enterprises when they carry out the outward investment strategy. It can not be denied that there are some limitations in this thesis. As everybody knows, foreign direct investment is a complex and long-term project, so its real effects may take a long time to show completely. Additionally, due to the space and time, this paper does not involve the entry mode of foreign direct investment in ASEAN countries. In the afterward research on foreign direct investment, the author can pay more attention to the entry mode.