Why Overseas Chinese Dominate China's Exports

Since the early 1990s, more foreign direct investment (FDI) has flowed into China than to any country except America. Of this vast capital inflow, overseas Chinese – from Hong Kong, Taiwan, Macao and Southeast Asia – delivered the lion’s share. Investments from Hong Kong and Macao claimed 70% of Chinese FDI in the early 90s; since then their share has decreased, yet it still accounts for 50% of China’s total FDI.

That China receives so much capital from expatriates is a global source of envy. Indian officials bemoan the fact that overseas Indians lack both the wealth and the propensity to invest back home. Economists and China-watchers celebrate this ready supply of capital, know-how, and marketing channels which enabled China to become – in a short period of time – Asia’s manufacturing base and export power-house.

Lavish praise for this stream of expatriate FDI, however, misses its deep flaws. Yes, expatriate-invested firms produce many Chinese exports, but they often do it by seizing control of export-oriented businesses from indigenous Chinese. Two ratios tell the story. One is the export/GDP ratio, which rose from 15% in 1990 to 20% in 1999, an increase of 5%. The other is the share of exports by foreign firms of total Chinese exports: this rose from 15% to almost 40% during the same period. So, foreign firms may create exports for China, but they also divert a big slice of the export pie away from indigenous Chinese entrepreneurs.

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