Upgrading China’s Economy through Outward Foreign Direct Investment (ODI)

@@ On several occasions since taking office in 2003, China’s Premier Wen Jiabao has warned that China’s economy is unbalanced, uncoordinated, and unsustainable. Accordingly, one of the top policy priorities under Wen’s government was to transform China’s growth model. But it appears that many of the problems affecting the country’s economic structure will still remain when he steps down in the fall of 2012. A key concern regarding China’s economy, among others, is about the quality of growth. The surprisingly rapid economic growth over the past thirty years in China has resulted from reliance upon extensive growth, which has also been at the expense of the environment and resources. The situation has worsened in the 21st century. The industrial sector, the largest contributor to the country’s economic growth, has experienced an obvious heavy industrialisation process since the middle to late 1990s. Within the industrial sector, manufacturing is still at the low-end of the international industrial chain since a majority of profits flow to foreign multinationals for their provision of technology, design and other services (Wang and Wang 2011). On the other hand, beyond mainly investing foreign reserves in low-yield foreign government bonds, China has taken the world by surprise by exporting large amounts of capital, which is increasingly in the form of outward foreign direct investment (ODI). The country’s ODI flows rose sharply from US$2.85 billion in 2003 to US$68.8 billion in 2010. A twenty-fold increase within eight years.