The Other “New Normal” or Chinese OFDI on the Rocks?

Dr. Jean-Marc F. Blanchard's picture

For some judging the current state of Chinese outward foreign direct investment (COFDI) negativity is the “new normal.” Rejected in Myanmar due to domestic politics, whipsawed in Sri Lanka by shifts in administrations, and hamstrung by the US Committee on Foreign Investment in the United States (CFIUS) national security review process, China Inc. is grappling with numerous deal cancellations, delays, and rejections. After a decade or so of stories about eye-catching billion dollar deals by Chinese companies, stories about COFDI failures now get the headlines. For many, the current state of affairs only validates their image of Chinese investors and the Chinese government as ignorant, inexperienced, and excessively risk acceptant. But much as the achievements of COFDI have been exaggerated over the years, the failures of COFDI and the Chinese entities engaged in it, are now being overstated. First, it is strange to claim deals troubled by natural disasters or the CFIUS review processes confirm the existence of Chinese government or firm investment decision-making pathologies. Second, the gains from individual OFDI deals need to be understood holistically. Even if an individual deal fails, a Chinese business still may generate overall gains from OFDI by acquiring a brand or technology it can leverage elsewhere. Third, while there may be limited gains at the firm level from a particular transaction, it is quite conceivable Beijing is gaining from more secure resource supplies, the upgrading of its firms, and the opening of new value added chains. Fourth, COFDI is a relatively new phenomenon and thus failures are normal. Finally, it should be noted that even developed country outward investing firms frequently fail due to factors misperceived as unique to COFDI. In the final analysis, observers should reflect more carefully about the preceding issues otherwise they will wrongly dismiss real opportunities and competitive threats.