Yu Deng is a distinguished researcher at the Shanghai Finance and Development Laboratory
With the rapid changes in the globalization pattern and the acceleration of reglobalization, China has launched a relayout of globalization to accelerate the construction of a new development pattern of "dual circulation". The scale of China's foreign direct investment continues to expand, and Chinese local enterprises in new energy, electric vehicles, photovoltaic and other industries are accelerating their internationalization. Since the reform and opening up, Chinese enterprises have achieved "from scratch, from small to large, from weak to strong" in the process of integrating into globalization. In 2001, China joined the World Trade Organization (WTO) and firmly expanded its opening up to the outside world. According to the statistics of the International Monetary Fund (IMF), from 1981 to 2021, the proportion of China's (including Hong Kong, Macao and Taiwan) exports in the world increased from 3.2% to 15.36%, while the proportion of Japan and Germany's exports in the world decreased from 6.48% and 7.56% to 3.19% and 6.62% respectively in the same period, and the world share of United States exports also decreased from 18.28% at the peak to 13.04% (see Figure 1). According to data from the United Nations Conference on Trade and Development (UNCTAD), China's share of global merchandise exports (including Hong Kong, Macao and Taiwan) will reach 18.45% in 2023. After 2018, "anti-globalization" has intensified, and in the same period, China's economic transformation and industrial upgrading have released re-globalization dividends.
Source: International Monetary Fund (IMF), Wind
Fig. 1 Changes in the proportion of exports to the world by major countries in the world
On the one hand, the "going overseas" of Chinese enterprises reflects the increasingly close ties between China and the world, especially the increasing dependence of the world on China, behind which is the size and scale advantage of China's economy and the increasing international influence; On the other hand, it also reflects the "qualitative" improvement of Chinese enterprises towards transnational operation and internationalization, where "qualitative" refers not only to the competitiveness of products and services themselves, but also to the ability of transnational investment and transnational operation. The "going overseas" of Chinese enterprises has a profound macro logic, which is not only an important embodiment of the evolution of re-globalization and the re-layout of China's globalization, but also based on the practical problems such as the decline in capacity utilization rate in some domestic industries, and expand the international market through "going overseas". On the whole, the new round of Chinese enterprises "going overseas" is to conform to the trend of re-globalization, fully tap the potential of the international market, and actively participate in the international cycle to fully integrate into the global industrial chain, supply chain and capital chain. However, due to the increased risk of "decoupling and chain breaking" led by a few developed countries, trade protection measures will only increase, and in the future, Chinese enterprises still need to closely follow the strategy of national globalization and relayout, grasp the macro political and economic context, forge stronger supply chain resilience, expand diversified international markets and global risk management capabilities, and improve the level of return on foreign direct investment.
The development process and trend of reglobalization
The influence of the "Global South" is growing day by day, and the international market is becoming more and more diversified. Since 2008, globalization has quietly changed, and the advanced economies of Europe, the United States, and Japan suffered heavy losses in the 2008 global financial crisis, highlighting the huge risks and uncertainties behind their economic prosperity, and have instead had to seek to strengthen cooperation with large and medium-sized emerging economies to manage the risk of "fragmentation" in international governance. Although the international trade network, financial markets and monetary system are still dominated by advanced economies, the "Global South", represented by major large and medium-sized economies such as China, India, ASEAN, Central Asia and Latin America, will have a greater say in building more equal economic and trade cooperation to hedge and balance the risks of "decoupling and chain breaking" promoted by a few advanced economies. The rise of the "Global South" is expected to accelerate the evolution of reglobalization.
According to World Bank statistics, from 1980 to 2021, the proportion of China's and India's GDP in the world increased from 2.66% and 1.62% to 18.34% and 3.24% respectively, while the world GDP of Indonesia and Mexico rose to 1.22% and 1.35% respectively in the same period, and the world share of United States' GDP fell from 33.43% at the peak to 24%, and the world share of Japan and Germany's GDP continued to decline. The Regional Comprehensive Economic Partnership (RCEP), with China and ASEAN as its main members, as well as China's Belt and Road Initiative and the enlarged BRICS+ (BRICS) initiative, are exerting increasingly important international influence and strongly promoting the process of reglobalization. Chinese enterprises "going overseas" conform to the mainstream of reglobalization and can seize the development dividend of reglobalization. The changes in the external environment are an important opportunity period for Chinese enterprises to become new round of internationalization, and the continuous growth of the export scale represented by the "new three things" (electric manned vehicles, lithium batteries, and solar cells) is a successful demonstration of Chinese enterprises "going overseas".
Although there is the impact of "anti-globalization", it is difficult to resist China's "dual circulation" strategic layout. After 2018, China is facing an increasingly complex international economic and trade situation, Sino-US "trade frictions" superimposed on geopolitical risks, the world has entered a period of turbulence and change, the dividend of globalization has gradually been destroyed, and re-globalization has become the consensus of most emerging economies. Objectively speaking, in the short term, "decoupling and breaking the chain" and various trade protection policies have brought a negative impact on globalization, but in view of China's global market influence, deep manufacturing foundation and irreplaceable competitive advantages in the manufacturing industry chain, United States' maximum pressure has not changed China's expanding trade surplus, and the bilateral trade volume between China and the United States will still reach 664.45 billion US dollars in 2023, proving that "de-globalization" is not advisable.
Data shows that from 2017 to 2023, China's trade surplus increased to US$822.1 billion, an increase of 96%. The so-called "decoupling and disconnection" is difficult to achieve and seriously undermines international trade networks, weakening the potential for trade growth, and is not in the interest of most economies. China is India's largest trading partner in fiscal year 2023-2024, with bilateral trade at $118.4 billion, slightly exceeding United States' $118.3 billion, according to the study. Over the past decade, China has accelerated its globalization layout, not only with a significant increase in foreign direct investment, but also with the rapid development of Chinese enterprises from "exporting" to "going overseas", and the number of overseas investment and factories has also increased. According to China's Ministry of Commerce, from 2013 to 2021, China's outward FDI flows increased from US$107.844 billion to US$178.82 billion, an increase of 65.8% (see Figure 2). According to the 2019 McKinsey Global Institute's China and the World report, the world's dependence on China's economy has increased, indicating China's growing importance as a consumer market, supplier and provider of capital. In the long run, "de-globalization" is not the international mainstream, and it is difficult to resist China's "dual circulation" strategic layout, and re-globalization and regionalization will release new trade growth potential, which will be good for the rise of the "Global South".
Source: Ministry of Commerce of the People's Republic of China, National Bureau of Statistics, Wind
Figure 2 China's outward FDI flows and utilised FDI
Chinese enterprises "going overseas" ushered in a period of opportunity
The dividends of re-globalization will continue to be released, and China's re-layout of globalization will usher in new opportunities. In September 2023, the World Trade Report 2023 released by the WTO proposed that reglobalization is conducive to the global response to challenges such as national and economic security, poverty alleviation and environmental sustainability, and called for promoting the process of reglobalization. In order to balance the trend of "anti-globalization" and trade protectionism, China's two-way investment has achieved positive results and further demonstrated its resilience amid the unstable changes in global cross-border investment. Global foreign direct investment (FDI) fell by 12% in 2022, but FDI into China increased by 5%. China is committed to "going global" and continues to expand its outward direct investment, with a presence in Southeast Asia, Central Asia, the Middle East, Africa, Latin America and other Africa, Europe and the United States. At the end of 2021, China's outward FDI stock was US$2.79 trillion, ranking among the top three in the world for five consecutive years. In 2021, China's direct investment in countries along the Belt and Road reached a record high of US$24.15 billion, accounting for 13.5% of China's total outbound investment flows. At the end of 2021, the stock of FDI was US$213.84 billion, accounting for 7.7% of the total stock. The continuous improvement of China's cross-border investment and financing, international talent exchange and other policy facilitation will create more favorable conditions for Chinese enterprises to "go global", and the overseas layout of Chinese banks will also help to better serve Chinese enterprises to "go global".
From the perspective of regional strategic layout, China's advocacy of the Belt and Road Initiative not only drives the infrastructure construction of participants along the route and improves the living standards of local people, but also promotes the expansion of investment by Chinese enterprises in Southeast Asia, the Middle East, Central Asia, Latin America and Africa, and helps the local governments establish emerging industrial chains including new energy and electric vehicles. According to data from the Ministry of Commerce, as of the end of 2022, the stock of direct investment by Chinese manufacturing enterprises in Asia was US$136.13 billion, higher than that in Europe and Latin America, of which 30.4% went to ASEAN, reaching US$41.37 billion (see Figure 3). In recent years, China has continued to deepen cooperation in the "China-ASEAN Free Trade Area", successively laid out electric vehicles and photovoltaic industry chains in Indonesia and Thailand, and deeply integrated into the local emerging industry planning. In 2023, China's new energy vehicle exports will grow strongly, accounting for 25% of total vehicle exports. Coupled with favorable external factors such as national policy support, China's automobile exports have "increased in both quantity and quality", and the unit price of automobile exports has increased from 13,000 US dollars to nearly 20,000 US dollars. China is expected to expand its cooperation with emerging markets such as the Middle East, Central Asia, Latin America and Africa, which have growth potential and give birth to new investment opportunities, which will bring new opportunities for Chinese companies to "go global".
Source: Ministry of Commerce of the People's Republic of China, Wind
Figure 3 China's stock of manufacturing direct investment in ASEAN, the European Union and the United States
The core competitive advantages of Chinese enterprises are rising, and the quality of international circulation will continue to improve. After China's reform and opening up, many industrial chains mainly undertake the industrial technology (including complete sets of equipment) of developed countries in Europe, the United States and Japan, and foreign companies have provided advanced technology, capital, talents and international management experience. In 2001, after China's accession to the WTO, the scale of exports increased significantly, and at the same time began to plan to "go overseas", but mainly to export goods, most of which were textiles, clothing, toys, furniture and other manufactured products. In recent years, the proportion of China's intermediate goods exports has been increasing. According to the statistics of the General Administration of Customs of China, China's exports of intermediate goods accounted for 47.3% of the total export value in 2023, of which mechanical and electrical intermediate goods accounted for 26.8% of the total export value. According to the report released by the Boao Forum for Asia in 2023, China is in the leading position in 20 of the 22 intermediate goods with the largest trading volume, which shows the advantages of its global redistribution. In addition to the manufacturing sector, Chinese enterprises are leading new models, new business formats and new development trends in the digital economy and new consumption fields, including cross-border e-commerce, overseas warehouses and other businesses, which are also expanding their overseas layout to obtain growth opportunities and drive local employment and tax growth.
From the perspective of specific markets, China exported auto parts intermediate products to Japan and Mexico, lithium battery intermediate products to United States and Germany, and flat panel display module intermediate products to Viet Nam and Indonesia, all of which had double-digit growth. From the domestic level, part of the reason for the trend of Chinese enterprises "going overseas" is to expand the revenue growth space of enterprises, solve the practical problems such as the decline in capacity utilization rate in some industries, and at the same time to avoid the impact of trade protection policies implemented by developed countries in Europe and the United States, and turn to expand non-European and American markets. According to the study, Chinese enterprises have directly invested in foreign countries to set up factories and carry out localized operations, and the proportion of overseas revenue has accelerated. According to the survey, the overseas revenue of China's listed companies mainly comes from the contribution of machinery and equipment, electronics, basic chemicals, medicine and biology, power equipment, automobiles and other industries, of which 264 listed companies will account for more than 70% of the total revenue in 2023, mainly concentrated in electronics, machinery and equipment, medicine and biology and light industry manufacturing industries. Another set of data shows that in 2022, the overseas revenue of more than 1,300 A-share listed companies (with continuous overseas revenue) will increase by 3.5 times compared with 2013, and the proportion of overseas revenue in the total revenue of listed companies will rise to 18.2% in the same period. On the whole, Chinese enterprises have achieved remarkable results in "going overseas", the cross-border operation capabilities of Chinese enterprises have continued to increase, and the competitiveness of products and services has also been improved, and it is expected that they will further develop and grow with the release of dividends of reglobalization in the future.
The strategic choice of Chinese enterprises to "go global".
Beware of the risk of "decoupling and chain breaking", and further enhance the ability of cross-border operation. The WTO noted that early signs of trade fragmentation are already emerging, with geopolitical tensions beginning to affect trade flows, which in turn leads to fragmentation of trade relations. The calculations found that the growth of trade in goods between the two hypothetical geopolitical blocs was 4% to 6% slower than that of intra-bloc trade. However, the rise of the "Global South" is unstoppable, and the trade protection pursued by developed countries is unlikely to be "loosened", but strengthened. The United States recently announced that tariffs on Chinese electric vehicles will be increased from the current 25% to 100%, and the new measures will affect $18 billion worth of goods imported from China, including steel and aluminum, semiconductors, batteries, critical minerals, solar cells and port cranes, while the European Union plans to launch a countervailing investigation against Chinese electric vehicles. So far, United States and others have "spared no effort" in promoting the policy of "decoupling and breaking the chain". The study shows that since the Sino-US trade friction in 2018, the direct dependence on trade between China and the United States has declined, and the dependence on Chinese imports has United States fallen to the level of 2005. As of February 2024, United States imports from China have decreased by about 20% compared to the beginning of the trade friction (June 2018), while imports from the rest of the world have increased by about 40%. In view of the fact that the adjustment of the international political and economic order is unlikely to be reversed in the short term, and the geopolitical competition will continue for a long time, with the acceleration of the number and scale of overseas investment and factory establishment of Chinese enterprises, Chinese enterprises "going overseas" need to accurately judge the international situation, not only to firmly promote international operations, accelerate the international market, but also to fully integrate into the host country's economic and industrial policies and policies and systems to attract investment, adapt to the local financial environment, and reduce unnecessary expected investment losses. At the same time, government departments, industry organizations and financial institutions need to provide more policy guidance, increase efforts in cross-border data circulation, cross-border investment and financing services, foreign exchange risk management and control, and investment convenience, and support Chinese enterprises to "go global" in a planned way, continuously explore new markets and seize new opportunities, and help Chinese enterprises become bigger and stronger overseas.
Source: National Bureau of Statistics of China, Wind
Fig. 4 The scale of China's exports to major regions from 1998 to 2022
Keep up with the strategic layout of national globalization and enhance the international competitiveness of enterprises. In the face of new challenges such as great power competition and geopolitics, China has accelerated its globalization and actively expanded its international diversified markets, including increasing exports to Asia, Africa and Latin American United States, improving the competitive advantage of export commodities and enhancing the status of the trade chain value chain. From 2012 to 2022, China's exports to Asia and Africa increased to US$1.68 trillion and US$251.8 billion, respectively, an increase of 66.9% and 86.1% (see Figure 4). Although the United States has tried to reduce its import dependence on some Chinese goods and tried to seek alternatives from other markets such as Mexico and Southeast Asia, it is still difficult to achieve "decoupling and breaking the chain" in general. United States' implementation of "decoupling and chain breaking" against China not only threatens the stability and security of the global industrial chain, but also raises the cost of United States commodity imports and promotes high inflation. During the same period, China played an important role as a stabilizer of the global industrial chain and expanded its imports and exports to non-US markets. Statistics show that from 2017 to 2023, the share of China's exports in United States imports fell by 7.7 percentage points, but the share of non-United States imports increased by 2.3 percentage points, supporting China's global export share to increase by 1.3 percentage points. Reflecting the cross-border operation of Chinese enterprises, the survey shows that in 2023, 65% of the surveyed enterprises will account for more than 20% of their overseas business revenue, and 28% of the surveyed enterprises will account for more than 50% of their overseas business revenue. Looking to the future, it is the general trend for Chinese enterprises to "go global", but how to win in the "internationalization 2.0" era still needs to make strategic and tactical choices. On the one hand, Chinese-funded enterprises need to closely follow the country's globalization strategy, be familiar with and master the industrial, financial and investment policies of the host country, avoid blindly following the trend, comprehensively evaluate and formulate transnational business and investment strategies, orderly promote enterprises to "go global", explore new markets, use new models, and take root in localized operations. On the other hand, we should focus on upgrading and improving products and services, enhancing international competitiveness, complying with the laws and regulations of the host country in terms of talent introduction and management optimization, respecting local society and culture, and enhancing the reputation and image of Chinese-funded enterprises in the local area.
Enhance the internationalization level of Chinese banks, and actively serve Chinese enterprises to "go global". From the perspective of the overseas layout of Chinese banks, the number of overseas branches of Bank of China has reached 531, covering 62 countries and regions, and the total assets of overseas institutions account for more than 25% of the group's caliber. The number of overseas institutions of ICBC has reached 416, covering 49 countries, and the total assets of overseas institutions account for about 10% of the group's caliber. According to the survey, most overseas Chinese-funded enterprises believe that the financial services provided by the host country are not sound and incomplete, and there are many institutional obstacles in the actual implementation of the application for loans from banks and financial institutions in the host country, which seriously hinders the normal production and operation activities of Chinese-funded enterprises. In addition to providing basic settlement and other account services, Chinese banks also need to further extend to cross-border investment and financing services, RMB trade and credit, equity investment, and cross-institutional joint investment services. It is not only necessary to improve the investment and financing model of science and technology, but also to increase the innovation of cross-border financial services and further promote internationalization. Specifically, Chinese banks need to do a good job in three aspects to serve Chinese enterprises to "go overseas": first, optimize the layout of overseas institutions, explore the establishment of regional headquarters or regional center management models, improve the operating capacity, profitability and operational efficiency of overseas institutions, and strengthen the construction of supporting mechanisms such as science and technology and talents, so as to meet the financial service needs of global Chinese-funded enterprises. Second, in view of the frequent import and export control of science and technology and various sanctions in developed countries, it is necessary to strengthen the corporate governance of overseas branches, increase the professional construction of risk compliance review, law, integrity and anti-money laundering, effectively avoid compliance risks and secondary sanctions risks, and provide professional consulting services such as legal compliance and exchange rate hedging for Chinese-funded enterprises. The third is to deepen cooperation with Chinese-funded enterprises, strengthen cooperation and exchanges with overseas chambers of commerce, local public departments and local financial institutions, enhance the brand awareness and international competitiveness of Chinese-funded banks in the local area, actively expand international business cooperation opportunities, and help Chinese-funded enterprises "go global" and "bring in".
Source: The Banker Magazine Issue 7, 2024