Casting after Covid-19 or Premature Predictions about COFDI’s Demise
Last month, I wrote pessimistically about the prospects for foreign direct investment (FDI) in China in the post-coronavirus world. Contrastingly, I am not so pessimistic about the future of Chinese outward FDI (OFDI), though China’s economic situation, the challenged cash flows and balance sheets of Chinese investors (state-owned and private), and China’s ever present worries about capital flight will constrain OFDI amounts.
This seemingly pollyannaish view derives from home (China) and host (recipient) country factors shaping Chinese OFDI (COFDI). First, China’s quest for brands, intellectual property (IP), and markets is not disappearing—indeed, it might intensify as Beijing and Chinese firms strive to generate revenues. Second, the Covid-19 crisis has amplified healthcare’s salience and it is easy to envision Chinese businesses pouring money into healthcare brands, IP, and processes. Related to the first point, China’s need for markets could buttress its infrastructure investment activities because it underpins exports and draws in Chinese goods and services. Fourth, China may not consume as many natural resources as in the past, but past resource investments were not just about obtaining more resources, but also about obtaining secure resources. This imperative has not vanished. Fifth, competitors to Chinese investors are equally or more hamstrung clearing the field for greater COFDI. As far as host countries are concerned, despite real concerns about the downsides of COFDI and fears about vulture investors, host countries continue to require not just small amounts, but immense sums of FDI. Beyond this, countries such as Cambodia and Hungary have abundant political rationales to welcome COFDI. To be clear, the argument above is not that we soon will be witnessing a golden era of COFDI. It is that there are genuine reasons to expect COFDI to remain a global force even if China no longer will be buying up the world.