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A brief coming out of China reporting as to what they see as to their issues in growing their international trade. It is a different perspective in what they see as compared to what we see. When I was overseas for weeks at a time, I would pick up a local paper to get those perspectives. Many of the areas had the news in English. It was interesting enough and some detail could be learned.

Chinese firms going global: Context, challenges & opportunities
– by Li MingjunCEIBS – China Europe International Business SchoolFor some time, the idea that “overseas expansion is better than the domestic rat race”. Companies must go “out to sea or out of the game” has often been repeated in discussions amongst Chinese business leaders as to why so many Chinese firms are accelerating their overseas investment. Back in 2017, when the initial tremors of a global trade conflict first began to be felt, many Chinese firms chose to pump the brakes on their international expansion, leading to a precipitous drop in foreign direct investment. Yet, despite today’s severe external environment, Chinese firms are now choosing to meet challenges head-on and accelerate their march overseas.Is fierce competition in the Chinese market the only motivation? We argue that the new wave of Chinese firms expanding overseas in fact aligns with the trends of global economic development, and that they must make new breakthroughs if they are to thrive in the face of fresh opportunities and challenges.Our analysis of economic indicators reveals a clear trend: the global expansion of Chinese businesses is closely linked to the growth of the Chinese economy. This is not a random occurrence, but a strategic and initiative-taking choice.Looking at GDP, we see China’s economic base, although modest at first, has quickly caught up with developed nations, growing from $0.15 trillion in 1978 to a remarkable $17.52 trillion by 2023. This surge has secured China’s position as the world’s second-largest economy for 14 years in a row. The nation’s per capita GDP tells a different story. It only surpasses the $10,000 threshold in 2019 and reaching $12,700 in 2022, ranking it 63rd worldwide. This suggests vast untapped potential for China’s economic expansion. Notably, research shows a common pattern: most developed countries experienced a surge in businesses expanding overseas when their per capita GDP exceeded $10,000, a trend seen in the United States in the 1970s and Japan in the 1990s. Chinese businesses are riding a similar wave today, pursuing more robust global expansion.
In terms of foreign trade dependency (FTD), China’s foreign trade development also follows a global trend, peaking and subsequently declining between 1990 and 2010. After the Cold War, the world eagerly entered what could be called a golden era of “hyper-globalization”, during which China’s dependence on foreign trade soared to an all-time high of 64.48% in 2006. This surge gave domestic companies the chance to build up their initial wealth through foreign trade.After 2010, however, China’s dependence on foreign trade started to decline, a result of both the global economic slowdown following the 2008 financial crisis and a drop in demand from major trading partners, as well as China’s proactive efforts to create a new growth model. Today, China’s foreign trade dependency (around 35%) is higher than that of the US (around 20%) but roughly on par with the UK and France, indicating that China’s economic structure is well balanced.
In terms of foreign investment and capital utilization, China’s approach can be divided into two clear stages. From 1990 to 2000, China adopted a strategy of “bringing in”, offering market access in exchange for technology. This strategy led to a significant increase in the actual use of foreign capital, soaring from $10.29 billion in 1990 to $59.36 billion in 2000. From 2001 to 2016, China shifted its focus towards “venturing out”, and the country’s direct foreign investment outflow surged from $6.9 billion in 2001 to an impressive $196.1 billion in 2016, extending its economic reach to over 190 countries and regions around the world. Since 2016, China has successfully struck a balance between “bringing in” foreign capital and “venturing out” with its own investments, thereby strengthening its role as a major force in two-way investment.
The growth of Chinese corporations aligns closely with the pulse of the national economy, and their pace in venturing overseas resonates with the country’s current stage of development. According to the 2023 Fortune 500 List, the countries hosting the most of world’s leading businesses are China, the United States, Japan, and Germany.Meanwhile, the World Investment Report from the United Nations Conference on Trade and Development, coupled with data from China’s Ministry of Commerce, reveals that in 2022 the top four nations with the most foreign direct investments were, sequentially, the United States, China, Japan, and Germany. Notably, these very same nations were also the world’s top four in terms of GDP in 2022 and 2023. The pattern suggests a fundamental economic rule: a bigger economy means stronger businesses. As these businesses grow, they are more likely and able to branch out into international markets, and foreign investment naturally follows. This is simply how economics and market trends work.A look back at the history of Chinese enterprises going global reveals another clear trend: such businesses have sailed through three distinct waves of global expansion. These waves rolled in later than those of their Western counterparts, however, thus leading to the occurrence of unique strengths and challenges.During the first wave of global expansion between 2001 and 2008, Chinese businesses capitalized on their competitive labor costs and manufacturing capacities. They integrated into the production segments of the global industrial chain via product exports and OEM/ODM manufacturing, driven primarily by the pursuit of economic gains. The second wave spanned from 2008 to 2016, during which Chinese companies accumulated a certain amount of capital, propelling the country of its status as the “world’s factory”. Cross-border mergers and acquisitions became the principal strategy for global expansion, aimed at acquiring core competencies and minimizing production costs. The third and current wave, since 2016, has been powered by China’s huge market, fostering industrial consolidation and growth in capacity. Chinese enterprises, now equipped with core technologies, supply chain management skills, and business models refined through intense market competition, have turned overseas market expansion into a necessary strategic choice. The goal has shifted from “product export” to “industry export.”The three waves of Chinese enterprises expanding globally are all distinguished by a “late bloomer” approach to globalization. During the first wave, the high tide of “hyper–globalization” was coming to an end and the international economic and trade infrastructure had settled, developed countries transitioning beyond their rapid growth phase. It was at this point Chinese enterprises first started to venture abroad, competing globally with Western multinational corporations for the first time.By the time the second wave rolled in, the global economy had suffered a severe setback in the 2008 financial crisis, and growth in developed countries was flagging. This was the moment, however, at which Chinese enterprises, amid transformation and upgrading, actively began to pursue higher-level overseas expansion. As the third wave took shape, the rise of a “de-globalization” sentiment, and the increasing instability of the global macroeconomy, presented steep challenges for foreign investment. Chinese enterprises, at the apex of their global expansion efforts, faced intensifying pressures.As relative latecomers to global expansion, Chinese enterprises have found themselves navigating both opportunities and challenges. On the upside, the initial wave of global expansion prompted these enterprises to assimilate to the industrial shift from developed nations before engaging in extensive cross-border mergers and acquisitions in the second wave.This dual-phase process has helped Chinese companies establish a robust, top-tier manufacturing system that aligns with international standards, setting the stage for future upgrades in industrial structure and leaps in technology. Moreover, as the shortcomings of the traditional international economic and trade paradigm have become evident and the need for reform in the global governance system has become more urgent, stronger voices from emerging economies like China are in higher demand.China’s vision of a “community with a shared future for mankind” has been well-received by many countries, particularly in the “global south”, further underlining its role as a major power. On the flip side, China’s lack of a role in crafting the existing international economic and trade framework leaves it not only excluded from the rule-setting table but also often mislabeled as a “challenger” to the global economic order. This misperception has led to a degree of containment and suppression that Western multinational corporations didn’t have to contend with, which calls for Chinese enterprises to demonstrate greater resilience and wisdom in order to better protect their legitimate right to development.As technology rapidly advances and high-end production improves, along with the shift towards a more regionally focused global economy, nations around the world are swiftly adjusting their industrial policies to stay ahead in future development. This suggests we are at a turning point in the reshaping of global supply chains. Consequently, Chinese businesses should capitalize on this third wave of global expansion to fine-tune their global supply chain setups.Our on-site visits and research into various firms have also brought to light distinct features of the current third wave of global expansion among Chinese businesses. These lessons have shown us that amidst a challenging global economic climate, it is vital for Chinese enterprises to boost their strategic planning and ability to operate internationally.The ongoing third wave of Chinese businesses venturing overseas has seen the following significant changes:The key approach to global expansion has notably shifted from brownfield investments (cross-border mergers and acquisitions) to greenfield investments.China’s Ministry of Commerce data reveals that in the first two waves of overseas expansion, mergers and acquisitions (M&A) accounted for a significant portion of foreign direct investment flows, peaking at 54% in 2008 and 44.1% in 2016. This pattern has steadily decreased, however, dropping to just 9.3% in 2022. On the other hand, greenfield investments have been on a steady rise. As outlined in a report by the China Chamber of Commerce to the EU (CCCEU) in November 2023, greenfield investments have overtaken M&A as the leading form of Chinese enterprises’ investment in Europe.

Investment focus for Chinese overseas ventures is shifting from the US and Europe back to ASEAN countries.
During the first wave of overseas expansion, Chinese businesses were still finding their footing on the global stage, with a small volume of investment heading towards the US and Europe (less than 1% each in 2008), while ASEAN nations attracted a relatively larger share (4.44% in 2008). As the second wave hit, Chinese companies, eager to gain the vital skills and resources to fill in their own gaps, channeled an increased amount of direct investment towards the US and Europe (8.67% to the US and 5.1% to the EU in 2016), while direct investment into ASEAN countries remained stable (5.24% in 2016).However, the third wave has seen Chinese businesses more capable as global entities than ever, and the ASEAN market, which was ready to manage China’s overflow capacity and benefit from China’s industrial transfer, has gained prominence. Additionally, stricter security around Chinese investments in the US and Europe post-2016 has increased investment risks, making ASEAN an increasingly popular destination. Consequently, the share of investment in ASEAN has soared (reaching 11.43% in 2022), while investment into the US and Europe slumped to 4.48% to the US and 4.23% to the EU in 2022.Looking forward, as Chinese businesses venture into international waters there are three challenges that need to be addressed:Companies going overseas often face a variety of compliance risks, including data security and privacy, ESG-related rules (e.g. waste disposal and emissions, employee development and welfare, and workplace health and safety), financial rules (e.g. accounting, taxation, and auditing), and regulations related to geopolitical factors and trade protectionism (e.g. anti-dumping and anti-subsidy investigations). The recent buzz around Chinese “overcapacity” could also give rise to specific restrictions targeting Chinese firms.First, compliance: Companies going overseas often face a variety of compliance risks, including data security and privacy, ESG-related rules (e.g. waste disposal and emissions, employee development and welfare, and workplace health and safety), financial rules (e.g. accounting, taxation, and auditing), and regulations related to geopolitical factors and trade protectionism (e.g. anti-dumping and anti-subsidy investigations). The recent buzz around Chinese “overcapacity” could also give rise to specific restrictions targeting Chinese firms.When navigating the complex legal and regulatory requirements of overseas markets, Chinese enterprises face several major challenges: First, While Chinese companies excel in R&D, growing their business, and finding new markets, respond quickly to demands, and offer good value for money. Their limited knowledge of the legal systems in the target investment destinations can hinder their global expansion. Second, some compliance checks targeting Chinese companies are intertwined with geopolitical factors, making it hard for them to anticipate and respond to effectively. Finally, some regulations take time to process from announcement to practice, which can create uncertainty for enterprises. Companies often lack the necessary information and struggle to keep up with changes in the laws, which leaves them unprepared to deal with specific rules that could directly impact their business.These challenges require Chinese enterprises to actively seek support from government agencies and professional organizations. As part of their global expansion strategy, understanding and adhering to international laws and regulations should be a priority. There has been a growing trend, for example, of using anti-subsidy investigations as a tool to suppress Chinese businesses in the sphere of international trade policy. However, the WTO has a clear definition of “industry subsidies,” which renders many accusations against China’s subsidy programs fundamentally groundless.Over the last decade, Europe has introduced 12 ESG (Environmental, Social, and Governance) regulatory policies, covering areas such as sustainable finance, sustainability reporting standards, shareholder rights, and green agreements, which need to be examined carefully by enterprises in order to fully understand the related rights and obligations. In addition, companies should actively seek legal support, especially from experts in international law. Engaging professional teams for tasks like reviewing international trade contracts, registering overseas trademarks or patents, addressing international trade disputes, and overseeing anti-dumping and anti-subsidy investigations can help companies to mitigate compliance risks and protect their interests in the complex landscape of global trade.Second is global strategy. For the long-term growth of Chinese businesses, it is crucial to align with global trends and plan accordingly. Certain prominent and early moving Chinese companies have already led the way in global expansion, especially companies with technological and industrial strengths. Many of these companies often prefer to work independently and opt for a vertical integration strategy in their production and supply chain, extending their control up and down the industrial chain through integration and acquisitions, thus creating an internal supply-demand balance. This model is beneficial in the short term as it helps to lower production costs, protect core technologies, and withstand industry fluctuations. In the long term, however, it can lead to increased investment costs and difficulties in maintaining focus on key areas. In the current complex macroeconomic landscape, risks related to offshore vertical integration are on the rise.Therefore, to achieve long-term success, companies must reassess their strategies and give priority to understanding global supply chain models. Many multinational powerhouses have embraced global layout strategies, optimizing resource allocation and specialized roles on an international scale, while focusing on specific segments of the industrial chain. This global approach helps companies to reduce risks, boost innovation, and increase flexibility. As countries increasingly resort to trade tactics to keep emerging industry supply chains within their own borders, vertical layout may hinder a company’s ability to integrate into local industrial ecosystems and gain support from local governments.Transitioning from a vertical to a global layout requires a significant shift in terms of a company’s management skills, talent acquisition, risk management, and choice of partners. Companies should make early preparations, planning the shift from overseas sales to overseas production and R&D. They should encourage innovation in specific collaboration strategies, focus on having a win-win mindset, explore mechanisms with overseas partners for joint R&D, share technology and user data, and co-develop products for third-party markets.Third, region matters. Many firms see Europe as a frontier in their global expansion strategy and must improve their abilities if there are to seize opportunities and tackle challenges. The Report on the Development of Chinese Enterprises in the EU 2023/2024 released by the CCCEU shows that Europe continues to play a large role as a destination for Chinese companies’ overseas investments.For numerous Chinese firms, Europe is a strategic “must-win” market, due to its critical importance in building brand recognition and creating a global corporate image. Additionally, the EU also offers substantial growth potential in burgeoning areas like digital and green economies, and its robust industrial infrastructure, including supply chain, talent pool, and infrastructure, is well-equipped to empower business growth. However, Chinese businesses have been facing mounting protectionist challenges in Europe in recent years, making it more difficult to secure open, fair, and non-discriminatory treatment.Therefore, companies should adopt more flexible market entry strategies, such as partnership-based mergers and acquisitions or external collaborations, to make inroads into the European market. Geely’s acquisition of Volvo in 2010 offers a model of partner-based acquisition. With a fully authorized approach, Geely treated the acquired company as a partner and leveraged internal collaboration in R&D and procurement to enter the European market with lower costs and minimal conflict. Similarly, in 2023 Stellantis and Leapmotor formed a joint venture, with Leapmotor focusing on technological R&D, and Stellantis managing overseas sales and manufacturing, which significantly reduced Leapmotor’s cost of overseas business operations.Germany and France, as important engines of economic growth in Europe, present great opportunities for Chinese businesses. Recent diplomatic engagements, such as President Xi Jinping’s recent visit to France and Chancellor Scholz’s recent visit to China, have warmed Sino-French and Sino-German relations, creating favorable conditions for Chinese companies to invest in these countries.Germany has been China’s largest trading partner in Europe for 49 consecutive years. In 2023, Germany’s direct investment in China reached €11.9 billion, accounting for 10.3% of its total foreign investment. This opens the door for China and Germany to further bilateral investment in areas such as auto and auto-parts manufacturing, electrical engineering, chemicals, and green industries.France, China’s third-largest trading partner and source of investment within the EU, has likewise seen fruitful results from President Xi Jinping’s visit. This paves the way for Chinese companies to engage in Sino-French collaborations in fields such as biotechnology, healthcare, artificial intelligence, food, service trade, and digitalization.If Chinese enterprises can leverage opportunities like these, while being mindful of and rising to the challenges that they face in a challenging global marketplace, the current third wave of global expansion by Chinese enterprises is likely to continue at pace.More By This Author:Where Do Federal Tax Dollars Go?
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