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1. Introduction
1.1 Motivation
“China is taking over the European Union- and we Europeans sell our soul.” 1
- German EU Commissioner Günther Oettinger
The emergence of Foreign Direct Investment is a central result of ongoing economic globalization. Investment flows between countries establish new contexts of economic exchange and integration. Formerly, triad countries like Japan, Germany or the United States exclusively dominated Foreign Direct Investment, making the Western World the central source of FDI. (Dunning/ Kim/ Park 2008, 1) During the early 1980s, new players from East- and Southeast Asia started to emerge. These co-called tiger states;
usually referring to Singapore, South Korea and Taiwan; started to intensify their investment relations with the outside world rapidly. (Mathews 2006, 5) Only recently have new players entered the stage and gained hold in this type of capital movement, stirring much concern. The emerging BRIC economies (Brazil, Russia, India and China) all have their staggering size and rapid speed of development in common- leading to the assumption they will eventually move beyond their mere potential.
(Deng 2008, 17) One of the most discussed examples is China, which started to appear as an investor in developing countries early on, but recently also extended its activity into the developed markets. (Schüller/ Turner 2005, 11)
China has been successfully attracting Foreign Direct Investment since the beginning of its open door policy in the late 1970s. For the first time, in 1993, China became the largest single recipient of Foreign Direct Investment among all developing economies, continually improving its rank among all other nations since 2006.2
1 Original: China übernimmt die EU, und wir Europäer verkaufen unsere Seele. Quoted from: SZ 09.13.2011
2 UNCTAD’s World Investment Report 2004 (Annex table B.1, pp. 367 /370); UNCTAD Investment
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As mentioned above, China however is not only experiencing an inflow of FDI, but has itself become a major source of FDI for other parts of the world. This
development is part of a larger strategy dubbed The Go Global Policy (走出去, Zǒuchūqù), which was officially adopted in the tenth five-year plan of October 2001.
(Cheng/Ma 2008, 8) In the following years, Chinese companies have set up shop abroad and entered foreign markets as investors. Accordingly, Chinese outward investment rose from around 2.7 $ billion in 2002 to 56.5 $ billion in 2009, while direct investment rose from 29.9 $ billion to 245.7 $ billion for the same time-span.3
Extensive research exists with regards to FDI flowing from China to countries of the Global South (such as in Asia, Africa and Latin America), yet little research has been undertaken on the role of China as a source of outward FDI (OFDI) to developed markets in particular.
With the establishment of the China Investment Corporation, a Sovereign Wealth Fund with resources of more than US $200 billion, Chinese OFDI has received growing scrutiny in the US and Europe. (Berger/ Berkofsky 2008, 2) And indeed, Germany has in the past years developed to become one of the primary locations attracting Chinese OFDI. (Cheng et al 2008, 13) Media have picked up on the story and reacted with a mixture of fear and enthusiasm to the new development. The notion that China will eventually buy up German companies’ technological advantages, and particularly target them for their know-how, creates negative sentiments in the wider public. (Milleli/ Hay 2008, 12)
Since then, media and politicians warned of a Chinese buying spree in Germany.
Where China’s economic potential and staggering growth rates are concerned, outward direct investment from China may soon become an important factor for further economic development in Germany. (Chow 2010, 60) While there is a
multitude of research on the Going Global Strategy and OFDI to Germany, there is no actual in- depth analysis of the integration between the Chinese and the German economies. Some cases underline the potential dangers of inviting Chinese FDI in, while others highlight the positive impact this has had on German companies in
3 Refer to: 2009 Statistical Bulletin of China‘s Outward Foreign Direct Investment. Ministry of Commerce, http://hzs.mofcom.gov.cn/accessory/201009/1284339524515.pdf
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financial distress. (Chuang 2010, 18) Largely left in the dark however, remains the capacity of Germany’s governmental and social actors to regulate and shape Chinese OFDI. This study aims to bridge the gap between a wider discussion of Chinese OFDI flows and the largely ignored roles of managing institutions in government and
society alike.
1.2 Research Objective
While Chinese Outward Foreign Direct Investment is by no means a new phenomenon, little research has been undertaken with regards to the managing
capacity of governmental and social actors in Germany. As perceptions of OFDI from China to Germany have shifted quite considerably; now ranging between suspicion and fear; it seems all the more important that such a study be undertaken at this point in time. OFDI from China is not simply a free-flowing phenomenon, happening largely on its own terms in the respective recipient countries, but is subject to- and regulated by local legal frameworks and vested interests of different stakeholders.
Therefore the study of these stakeholders and their respective roles -embedded into a wider discussion of Chinese OFDI- will contribute to a more thorough understanding of these developments.
The possibilities of- and roles played by governmental and social stakeholders alike are an exciting and highly relevant question. This thesis takes a wider perspective, thus not only narrowing itself to the analysis of the individual actors, but also
embedding it into a wider discussion of China’s OFDI rationale, trends, perspectives, resistances and overall developments to Germany.
For this purpose, the development of OFDI flows from China to Germany needs to be analyzed before the background of standard theory of direct investment determinants, the general investment behavior of companies, and FDI flows from developing and emerging economies. Since China’s economy is highly susceptible to state influence, the particularities of Chinese OFDI need to be discussed and taken into consideration here.
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The analysis of Chinese OFDI to Germany needs to comprise of statistical aspects beyond the theoretical discussion. How large has Chinese FDI become, how has it developed and what are the characteristics of its sector- and geographical distribution?
Furthermore the motivation of Chinese companies needs to be taken into consideration- is there any sector focus that requires specific attention?
Only with a thorough understanding of the background of Chinese OFDI, its size and motivations, can a fruitful discussion of its local management be undertaken. Without this background, conclusions on the management capabilities of German stakeholders fall short of acknowledging the complex and comprehensive parameters determining Chinese FDI flows.
1.3 Research Design
As stated above, this study will attempt an examination on a currently insufficiently explored subject. The actual setting of the issue to be discussed is one of wider political and economic relevance, since developments in economic relations between states are concerned. While for many years investment exclusively flowed from the Northern hemisphere to the Global South, and then later on from South to South, we still know little about the specifics of South to North investment flows. This research therefore aims to make a contribution as to providing further in depth analysis in this sense. Germany and China are both economic heavyweights with increasing cooperation that now flows both ways. There is little research available on where this relationship may be leading before the background of increasing OFDI. The access of Chinese companies and Chinese state funds will likely impact increasingly on Germany, yet we know little about the capability of the German government and society (let alone the EU) to respond to- and influence these OFDI flows.
In the light of the diverse body of literature available with regards to the topic, in the first half this study employs a deductive approach- starting from basic theoretical models of Foreign Direct Investment and then closing in on the topic of Chinese OFDI in several steps.
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First, primary data is employed to provide a general overview of developments and the nature of OFDI flows from China to Germany. This is done through theoretical literature, existing research and statistical data from multiple sources. Since variations exist with regard to congruence of data, statistics are employed to provide insights into general trends. After this, secondary data such as existing research papers,
journals, books, and media sources are utilized to enhance further the outcomes of this analysis. They further contribute towards the analysis of Chinese OFDI in terms of quality as well as its spatial- and sector distribution.
The second half of the paper is primarily based on case study research, secondary data an additional expert interview. The interview has been conducted in a wider fieldwork with a high-ranking official from a state ministry of Economics. Furthermore, press releases were supplied through the federal Ministry of Economics.
Secondly, the role of social agents in Chinese OFDI is assessed through secondary data. Since their means of influence are clearly stated by law, case studies suffice to highlight their role. For social actors in particular, media analysis was used as a helpful tool in exploring their capabilities and strategies vis-à-vis Chinese investment.
To sum up, the research will discuss the topic along four basic research questions:
• How has Chinese OFDI to Germany developed?
• What can be said with regards to nature, quality and size of Chinese OFDI to Germany?
• What is the spatial- and sector distribution of Chinese direct investments in Germany?
And as my central research question:
• What influence is the German government (or the regional states/ or EU) able to exert on Chinese investment today and in the future? What is the influence of social agents (esp. workers unions) on Chinese investment in Germany?
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1.4 Literature
The first chapters of this analysis will be based on existing research that is available in abundance, albeit its individual limitations.
The study of direct investment is a comparatively young discipline, emerging around the 1960s and 1970s. Several theoretical models have developed as groundwork for this discussion, most notably John H. Dunning’s elaborations on FDI. As his theoretical assumptions have undergone considerable critique (as FDI and its stakeholders have evolved over time), diverging theoretical models will be taken into consideration as well. Yet his Eclectic Paradigm and Investment Development Path Hypothesis have remained the foundation of any discussion on Foreign Direct Investment.
A host of literature exists on the specifics of FDI from emerging economies and China in particular. These range from theoretical discussion to case based studies. The very basic assumptions however, are mostly derived from the United Nations Conference on Trade and Development (UNCTAD) which not only provides a numerical analysis but furthermore a qualitative review of emerging economies’ FDI activity. Further statistical discussion is based on not only UNCTAD’s statistical program UNCTADstat but also on the statistical data provided through the German Central Bank, Chinese official statistics, and the European Statistical Agency Eurostat.
Third, literature on China’s specific and particular economic development and FDI formation is available in abundance. This entails literature from an economics- as well as a developmental perspective. In particular the discussion of China’s Outward Foreign Direct Investment and China’s Go Global Policy by Li Zhaoxi (in Larcon 2009) are employed to explain the specific configuration of Chinese FDI activity. Li Zhaoxi’s discussion, published in cooperation with the École des Hautes Études Commerciales de Paris and Tsinghua School of Economics and Management, is the most current publication on the Chinese OFDI regime.
Academic literature on Chinese OFDI flows to Germany has remained more or less sparse until to date. While various publications exist, their respective depth, extent and
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reach is limited, leading to fragmented analysis. Nonetheless, several papers by non-governmental institutions such as the German Institute of Global and Area Studies (GIGA), the EU-China Civil Society Forum, the German Center for Market Entry and Bertelsmann Stiftung all elude on the topic.
Correspondingly, the later half of the paper on respective management roles of German stakeholders in government and society is based on individual research and fieldwork.
1.5 Organization of Chapters
Step one is a theoretical introduction to OFDI as such. The basic concept (theoretical and practical) is explained and motives of OFDI are discussed. This is followed by a discussion of the most important theoretical models and explanations. The general theoretical excursion is followed by an in-depth discussion of OFDI flows from BRIC countries and provides further clarifications on the context of Chinese OFDI. This chapter provides a basic introduction to the state of the Chinese economy, its Going Global Policy and China’s Sovereign Wealth Fund.
The second half comprises the main body of the research. It brings together the findings of existing literature on Chinese OFDI and includes for a thorough analysis of Chinese OFDI to Germany. Thereafter the study concludes with an assessment of development, nature, quality and size of Chinese OFDI to Germany. In its course, questions of spatial- and sector distribution of Chinese OFDI in Germany are addressed. The chapter does further aim to provide several short case studies of Chinese companies, which offer exemplary insights into the results reaped from the macro-perspective analysis. The last step rounds up the analysis by shedding light on the ability of governmental and social stakeholders to shape and influence the inflows of OFDI from China. This section explains their roles in past and present, as well likely future developments. Furthermore, it assesses the conflict potential between the different spheres of institutions engaged and the trends that can be derived from the analysis.
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