China ‘s outward foreign direct investing has been increasing significantly for the past few old ages. From being an about non-existent phenomenon in the beginning of the 1980 ‘s, China was in 2008 the universe ‘s twentieth largest state in footings of outward FDI ( CIA Fact-book 2010 ) . Measured in one million millions of US Dollars, Chinese outward FDI increased more than tenfold between 1980 and 2008 ( MOFCOM and China Statistics Bureau ) . As of 2008, a sum of 157 states worldwide received Chinese FDI, Harmonizing to the 2008 Statistical Bulletin of China ‘s Outward Foreign Direct Investment,

The current addition in China ‘s outward FDI has drawn the attending of western states and the motivations behind that have been questioned. This is peculiarly true for investings in host states classified as developing states. So what really, determines which developing states China invests in? Well, the Sino-African relationship is relevant to look at to understand China ‘s new function in developing states.

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The being of Chinese investors in Africa has raised both concern and hope, and this has resulted in worldwide arguments on both economic and political degrees. During a argument in last twelvemonth February ‘s Issue of The Economist, George Ayittey, ( Distinguished Economist, American University ) and Professor Calestous Juma, ( Professor of the Practice of International Development, Harvard ) shared their diverse sentiments and positions on the effects of the rapid addition in Chinese activities in African. Ayittey George was disbelieving and sing the aims of China he concludes: “ Its existent purposes are good known: to elbow out all foreign companies and derive entree to Africa ‘s re-sources at inexpensive monetary values ” . Ayittey George is afraid that China will run as a 2nd coloniser and take advantage of Africa ‘s resources. Professor Juma on the contrary sees China as a positive force in advancing and heightening African growing: “ China ‘s lifting demand for Africa ‘s natural resources helped to re-establish Africa as a beginning of valuable trade goods for the planetary market ” .

Developing states in the place of investors is relatively new phenomenon, and the early theories about which factors determine where FDI takes topographic point have been realized largely from the position of industrialised states ( Sauvant 2005 ) . However, in recent old ages, researches are been conducted to happen out as to whether Chinese outward FDI in Africa is determined by other factors. Buckley et 2 Al ( 2007 ) found out that Chinese outward FDI is attracted to African states with high political hazard, whereas Cheung and Qian ( 2008 ) found no important consequence of establishments. These two researches find Chinese FDI to be attracted by natural resources.

While the research conducted by Buckley and Qian chiefly acknowledge domestic factors act uponing Chinese outward FDI, my research focuses on the determiners specific to African states. Having said that, I decided to include merely developing African states in my research, as I steadfastly believe that the relationship that exists between China and Africa brings to bare a really critical facet on how the economic hierarchy in the universe is altering.

The determiners of Chinese outward FDI presented in this research will therefore be the influencing factors of African states merely. Besides, the clip period analyzed by Buckley et Al. consist of informations up to 2001. By critically detecting a Graph of that research ( Graph 5:1 ) , it becomes obvious that the dramatic addition of Chinese outward FDI started after 2003, therefore the starting point for my research.

The Chinese admiration has without uncertainty proved that it is possible for a hapless state to lift from poorness to an economic power truly fast, and this could do China a wise man for African states endeavoring for economic growing. For decennaries, developed states have been seeking to extinguish poorness through development assistance. However, this has non yielded any consequence. As documented by Ovaska ( 2003 ) , Western assistance has non been successful in advancing economic growing. The chief difference between Western and Chinese attitude towards African states is the Chinese non-interference policy ( Tull 2006 ) . This policy implies that China has the capableness of set uping concern dealingss without interfering in any political issues.

Is China truly taking advantage of the misfunctioning governments in some African states to cheaply tap natural resources as claimed by western states? Or China is offering a alone chance for African states trapped in absolute poorness to lift? Without uncertainty, the relationship between China, the universe ‘s fastest turning economic system and African states draw a bead oning to follow the same way deserves great attending.

“ We have turned east where the Sun rises, and given our dorsums to the West, where the Sun sets ” ; Robert Mugabe, during the jubilation of Zimbabwe ‘s 25 old ages of independency on 3rd May 2005.

1.1 Purpose

The purpose of this thesis is to analyze and analyse Chinese FDI to African states. The research tries to look into whether Africa ‘s natural resources are entirely what pull Chinese FDI, as the West claims. My purpose is to lend significantly to the on-going argument on China ‘s purposes in African states by supplying empirical research on the determiners of Chinese outward FDI.

1.2 Outline

The lineation of this thesis is as follows: The first unit consist of the debut and states the purpose of the thesis. The 2nd unit is a historical background of Chinese FDI. In the 3rd unit, a literature reappraisal within the context of the subject is presented. The 4th unit provides the theoretical base underlying my research and presents the chief theories. In the 5th unit, the informations collected and the arrested development theoretical account are presented. The 6th unit consists of the rating and analysis of the consequences. Finally the decisions drawn are presented in the 7th unit. Following this, the list of mentions and the appendix are stated.


2.0 Research Background

Harmonizing to the Organisation for Economic Co-operation and Development ( OECD ) , foreign direct investing ( FDI ) is an investing that reflects the aim of obtaining a permanent involvement by a resident entity in one economic system ( ”direct investor ” ) in an entity occupant in an economic system other than that of the investor ( ”direct investing endeavor ” ) .

The permanent involvement implies the being of a long-run relationship between the direct investor and the endeavor and a important grade of influence on the direction of the endeavor. Direct investing involves both the initial dealing between the two entities and all subsequent capital minutess between them and among attached endeavors, both incorporated and unincorporated.

2.1 FDI and Chinese FDI

Most research on the effects of FDI in developing states point towards positive effects on growing and development. Foreign direct investing in China played a critical function in developing and determining the Chinese economic system. Bo-rensztein et Al. ( 1998 ) found a positive correlativity between FDI and growing in their survey on FDI from developed states to 69 developing states over two decennaries. The consequences suggest that FDI is a critical vehicle for the transportation of engineering, and that relatively, FDI has larger effects on growing than domestic investing. Since 1970 ‘s, more broad national policies have encouraged foreign investors to put in China. Having said that, cheap labor in China has besides attracted tonss of foreign companies and this has led to a encouragement of the Chinese economic system.

China ‘s impressive growing rate over the past few decennaries has been fuelled by monolithic FDI. China is now the universe ‘s largest receiver of foreign direct investing.

China ‘s outward foreign direct investing has been increasing significantly in recent times and many of the host states are developing African states. Chinese FDI foremost begun in the late 1970 ‘s when the ‘open door ‘ policy was implemented, but the existent investing enlargements begun with the spell planetary policy, initiated in 1999. Datas on Chinese FDI has been consistent with IMF and OECD criterions since 2003 ( Cheung and Qian, 2008 ) . Among developing states, China is the universe ‘s 3rd largest investor in foreign states ( UNCTAD 2010 ) . From this occasion, when mentioning to “ Chinese FDIaˆY , out-ward Chinese FDI is implied.

Since the 1980 ‘s, China ‘s outward FDI has increased more than tenfold ( see Graph 5:1 ) . Despite this monolithic success, China ‘s outward FDI merely accounts for a comparatively little fraction of the Chinese GDP and China was merely the twentieth largest state in the universe in footings of outward FDI in 2008 ( CIA Fact book 2010 ) . One account for this might be that the outstanding growing rate in China has had the consequence of doing domestic investings more attractive than puting abroad. However, this seems likely to be altering as the addition of Chinese outward FDI since the center of the 1980aˆYs has been dramatically increased ( see Graph 5:1 ) .

Chinese FDI seems to be spread over the universe but has a singular bulk of its pro-jects taking topographic point in South and East Asia every bit good as in Africa. Though Africa is merely re-ceiving a little portion of the sum, the African continent is host to more Chinese FDI than Europe, North America or Oceania. Less than a 3rd of all FDI is really traveling to developed states ( Graph 5:2 ) and for case, 9 among the 15 largest receivers of Chinese FDI between 2003-2006 are developing states ( Graph 5:3 ) . The Chinese companies responsible for the largest FDI portion are with merely one exclusion state-owned. State-owned endeavors in China are extremely profitable and operate as monopo-listic houses in officially-sanctioned markets, frequently in sectors such as the natural resource industry or telecommunications ( Morck, 2008 ) .

2.2 The Investment Development Path

The investing development way ( IDP ) was first developed by Tormenting in 1979 and subsequently elaborated by assorted research workers. The theory argues that the FDI place of a state is associated to its economic development relation to the remainder of the universe ( Tormenting and Narula 1996 ) . Acccording to the investing development way, states tend to travel through five phases of development before the outward FDI is about at the same degree as inward FDI. These five phases are:

1. No being of inward or outward FDI.

2. Emergence of inward FDI while low grade of outward FDI.

3. Decelerating growing of inward FDI and an enlargement of outward FDI.

4. Outward FDI exceeds inward FDI.

5. Inward and outward FDI continue to increase and are about the same.

The investing development way illustrates the different phases a state goes through in opening up to the international market. All 104 developing states used in our survey experience influxs of FDI in the period 2003-2008 ( Table 2:1 ) except six.1 This implies that the bulk of the states are around the 2nd phase on the investing development way.

1 These were Azerbaijan, Liberia, Malaysia, Marshall Islands, Panama and Venezuela. 7


Literature Review

As the worldaˆYs largest receiver of FDI, much focal point has been on China having FDI from other states while its outward FDI has been given less attending. Two recent surveies, Buckley et Al ( 2007 ) and Cheung and Qian ( 2008 ) look into the effects on Chinese outward FDI to both developed and developing states and include natural resources in their analysis. Both surveies find China to be resource-seeking. However, Cheung and Qian do non happen support for ChinaaˆYs investings in African oil-producing states to be chiefly driven by natural resources. The surveies differ in their conclu-sion about establishments ; Buckley concludes that China is attracted to bad establishments whereas Cheung does non happen establishments to be important. A elaborate description of the surveies follows.

Buckley ( 2007 ) examines the determiners of outward Chinese FDI to 49 states be-tween 1981 and 2001. The research is divided into an early period ( 1981-1991 ) and a ulterior period ( 1992-2001 ) . The consequences show that in the ulterior period, Chinese houses have moved from close foreign markets towards riskier 1s in order to procure natural re-sources. This suggests that ChinaaˆYs need to procure natural resources have become more of import in recent old ages. Their consequences besides suggest that Chinese FDI is attracted to states with bad establishments, estimated by an index of political hazard. Both establishments and natural resources appear to go more of import for the ulterior period 1992-2001 which is explained by the market liberalisation by Deng Xiaoping in 1992. Further-more, Buckley finds Chinese FDI to be positively correlated with GDP, rising prices, trade and cultural propinquity to China. Cultural propinquity is estimated by the per centum of the population talking Chinese. Distance from China, nevertheless, was non found to be of significance.

Cheung and Qian ( 2008 ) examine FDI flows from China to 31 states, 21 development and 10 developed which were separated in the research, in the period 1991-2005. Natu-ral resources were estimated by the ratio of fuel, metal and ore exports as portion of entire exports. For the development states, the consequences showed resource-seeking motivations. The research workers found grounds that China has increased its attempts to procure natural re-sources in both development and developed states since 2002. Furthermore, it was found that China is increasing its engagement in developing states and appears to be insensitive to the hazard associated with developing states. In add-on to this, Cheung 8

and Qian discovery Chinese FDI to be attracted by the GDP of the host state every bit good as by low rewards.

Another of import research worker in the field of FDI in developing states is de Mello who analyzes the effects on FDI in selected Latin American states in the clip period 1970-1991 by utilizing Granger causality ( de Mello 1996a ) . A stronger correlativity is found between FDI and end product growing in little unfastened economic systems than in larger 1s. In addi-tion, de Mello ( 1996b ) concludes that there is a stronger positive relationship between FDI and domestic investing in non-OECD states, alleged technological dawdlers which are less technologically developed than the leaders. This would connote that developing states would profit more from the positive effects of FDI on domestic in-vestment than developed states. Both developing and developed states were found to profit from FDI in footings of increased end product growing.

The nexus of causing, whether FDI promotes growing or frailty versa, has been debated. de Mello ( 1997 ) suggests that the way of causality depends on the determiners of FDI. If the determiners of FDI appear to be strongly correlated to FDI, so growing is considered to do FDI. However, in the research by Chowdhury ( 2003 ) it is found that the nexus of causing tallies both ways. Three developing countries2 were studied in 1969-2000 and presence of unidirectional causality from economic growing to FDI was found, bespeaking that there was feedback between the two variables.