"Go Global" Strategy:the Trade Effects Of Outward Foreign Direct Investment

Outward Foreign Direct Investment and International Trade are two ways not only for countries to participate in the international division of labor, but also for enterprises to seek access to international markets. China’s "bringing in" strategy has achieved great success since the reform and opening up:strengthening the introduction of foreign capital and striving to expand export make China a major trading and economic power. While China’s inward foreign direct investment increased rapidly, China’s outward foreign direct investment had stagnated. In 2000, China formally proposed "go global" strategy. With the strong support of the Chinese government, Chinese enterprises accelerate the pace of foreign direct investment in recent years. In 2014 China’s outward foreign direct investment reached $116 billion, while in the same year China’s inward foreign direct investment is $119.56 billion. It’s the first time that inward and outward foreign direct investment were close to balance. China has an enviable problem to combine the great achievements of "bringing in" strategy with the rise of emerging investment power, promoting the transformation and upgrading of the economy.Both ASEAN and EU are China’s major trading and investment partners. ASEAN is the world’s largest group of developing countries, while the EU is the world’s largest economic entities of developed countries. To explore the regional variations, this paper conduct a comparative study of the trade effects of China’s foreign direct investment to these two regions, thus better guiding China’s foreign direct investment, and promoting "Go Global" to achieve strategic goals.This paper uses the classical theory of Mudell, Kojima, Markusen, Lall et al., combined with China’s specific conditions, making an analysis of foreign direct investment to ASEAN and EU in the perspective of the global supply chain. The study points out that China’s enterprises used to invest overseas in order to obtain a stable supply of raw materials a substantial export market. Because of the export-oriented mode of development, overseas investment aroused from trade and promoted China’s export in return. However, through many years’ technology accumulation, China is no longer satisfied to play a "world factory" role in the global supply chain. With the upgrading of China’s economic transformation, to enhance their core competitiveness is the main purpose of China’s enterprises to invest overseas. By invest in the EU manufacturing industry, China’s enterprises will focus on the manufacturing process of R&D and the main component; By invest in ASEAN countries, China’s enterprises will transfer marginal industries, diminish production cost, and explore new markets market. Then using 2003-2013 panel data, this paper makes an empirical analysis on China’s foreign direct investment to ASEAN and EU. The empirical results show that China’s foreign direct investment to ASEAN is negatively correlated with both export and import. And China’s foreign direct investment to EU has a positive effect on import but has no significant effect on export. The empirical study indicates that China’s investment to EU and ASEAN is not simply for market expansion or for resource. Today the main purpose of "go global" strategy is to acquire core technologies and improve productivity. Finally, according to the qualitative and quantitative analysis, this paper makes some practical suggestions for Chinese government and China’s enterprises.