Thailand Law Journal 2010 Spring Issue 1 Volume 13

Market-and Export-Seeking Investment: During the initial stage of China's "open door" policy, Chinese overseas investment often stemmed from the need to achieve diversification and earn foreign exchange. Market-and export-seeking investment is often conducted through the establishment of trading companies in foreign host countries. This helps to promote Chinese exports in various ways. First, trading companies act as the marketing and distribution channels for the sale of raw materials, semi-finished, and finished goods to host-country industries and consumers, and help Chinese exporting firms earn foreign exchange. Second, these companies provide host-country market knowledge through market information collection and research for parent companies in China. Third, these trading companies also act as "spotters" for investment opportunities in their respective sectors. This role is usually performed by representative offices set up in host countries, which are often the precursors to large-scale investment (Wu and Sia, 2002, pp. 44 - 45).

For example, Hanzhou provincial enterprise's joint venture with a rubber plantation in Malaysia to produce "student shoes" for the protected (62 per cent duty) Malaysia market, and Shanghai Bicycle Corporation's plant in Ghana and two plants in Brazil which together produce 800,000 bicycles for the local market (Wall, 1997, p. 27).

Resources seeking investment: The motive is to ensure a stable supply of certain resources which China has a shortage. Fishery, forestry and minerals extraction are some of the key industries that China targets. China is dependent on Australia for supplies of base metals such as iron ore, aluminum, and manganese. For example, China's largest investment projects in Australia include the canner iron ore mine, in which the China Metallurgical Import and Export Corporation holds a 40 per cent share (A$ 280 million). The joint venture ensures that China will be able to secure 200 million tons of iron ore supply from Australia, over a period of 30 years (Cai, 1999, pp. 868-869). In Southeast Asia, Chinese companies have focused on Malaysia's rubber, paper and base metals, and Thailand's agriculture, rubber, and chemicals products.

For example, in June 2001, Sinochem Chemcials made a US$ 1.5 million investment in Thailand for an antioxidants plant with a 1,000 ton capacity, of which 30 per cent of the plant's output will be exported. In Malaysia, a massive MYR 2.9 billion (US$ 760 million) joint venture between a Malaysian and Chinese partner was also established in January 2001 to produce pulp and paper in Sabah. The project, in which the Chinese partner holds a 64 per cent stake, is the largest single investment made by a made by a Chinese investor in Malaysia to date (Wu and Sia, 2002, p. 45). With China expecting to maintain its rapid growth, the need to secure overseas resources by investing in commodity-producing countries will continue to rise.

Technology-seeking investment: in order for China to climb the global value chain, it will have to seek more advanced technology from countries higher in development path. There are several ways to that, thorough technological transfers from foreign partners engaging in joint venture, by acquiring stakes in foreign firms with more advanced technology, by assimilating advanced technology from foreign firms into domestically produced products through technology-licensing, and by the purchase of advanced equipment through foreign affiliates at a lower price (Cai, 1999, p.869). China has relied heavily on technology transfers and licensing, usually via joint ventures with Western and Japanese partners For example, in 1988 by the Shougang (Capital) Iron and Steel Corporation of Beijing of 70 per cent of the equity in the Californian company Masta
engineering and Design Inc., in order to obtain access to the US company's high technology design capability in steel rolling and casting equipment (Wall, 1997, pp. 24-25). The Chinese firm Capital Group has had a mobile phone production agreement with Nokia China since 1995. Drawing from the technology gained through technology-licensing and transfers, the company has since branched out on its own into designing and manufacturing mid-market handsets, competing with other foreign players in the Chinese market (Wu and Sia, 2002, p. 46). In December 2004, Lenovo Group's US$ 1.25 billion acquisition of IBM's PC business promoted new media speculations and fascinations about global ambitions of Chinese companies (Business Week, 2004).

Efficiency seeking investment: although an abundant supply of land and cheap labor in China has reduced the need to make efficiency seeking investment overseas, there is nevertheless an emerging trend of such investment from China. Due to rapid expansion in domestic and external markets in the last decade, coupled with technology transfers from foreign partners operating in China, many Chinese firms have reached critical mass in the home market and attained sufficient knowledge. Consequently, some are seeking new outlets for their production, either through exports or through setting up production bases in developing countries. In some cases, Chinese companies attempt to circumvent trade barriers, or reduce transport cost to third market, by establishing production bases outside China. These companies can then use the export quotas of host countries for third markets, or gain access to preferential tariff rates. In recent years. China has been exporting large amounts of textile fabric to countries such as Thailand and Indonesia for reprocessing there, in order to dodge import quotas imposed by the US. The ASEAN Free Trade Area has also enticed some Chinese companies like TCL, a state-owned consumer electronics maker, to take advantage of lower tariffs by setting up operations in ASEAN (Wu and Sia, 2002, p. 46).

The objectives of the paper "China's Go-Out Strategy: Chinese Foreign Direct Investment in Thailand" are to describe the investment pattern of Chinese companies in Thailand, and then to study the intention and strategies of its actors. The paper will deal with three main issues: (1) China's investment trend in Thailand (2) The motives of China's outward FDI and (3) The Chinese companies in Thailand.

2. Empirical Analysis: China's Investment Trend in Thailand
The policy to promote outward investment and to establish a supporting system was included in the 10th five-year plan (2001 - 2005). The "Go-Out Strategy" will require new skills and capabilities to combine and manage disparate businesses across borders. With this in mind, Chinese domestic companies are increasingly nurturing the relevant skills and expertise they need to overcome the management and governance challenges they face as they integrate into the international business arena (Zhang,
2005). The government is becoming more supportive of Chinese companies expanding globally. Various government agencies such as the National Development and Reform Commission (NRDC), the Ministry of Finance, the Ministry of Commerce and the State Administration of Foreign Exchange (SAFF) have all developed policies encouraging Chinese Companies to expand overseas.

China's overseas investment is rapidly expanding with the progressive implementation of the "Go-Out Strategy," the Chinese companies are found to be more enthusiastic in investing abroad. China's investment trend in Thailand will be influenced by future Chinese economic relations with ASEAN. In light of the upcoming China-ASEAN Free Trade Area (CAFTA) scheduled in 2010, it is likely that China will increase its trade and investment activities with the region. Thailand could be chosen as a manufacturing and export base of Chinese products to the ASEAN region. Thailand stands to gain from the growing economic partnership between China and ASEAN as the country has close cultural and ethnic ties with China.
Apart from Thailand, many countries also target China as a source of investment capital. The huge foreign reserves of China, coupled with the fast growth of Chinese conglomerates, could lead to huge investment outflows in the near future. Investment offices from Malaysia, Singapore, as well as Thailand have already been set up in China to attract more Chinese investment. Therefore, Thailand's BOI should set clear goals and strategies in China and play a pro-active role in attracting Chinese investors. Thai companies should also set an eye on Chinese companies to form joint ventures and business partnership in both domestic and overseas markets in order to increase their international presence.

2.1 The Official Data: Chinese Outward FDI in Thailand
The official authority for collecting FDI data in Thailand is the Bank of Thailand (BOT) and it lists the flows of FDI for use in its BOT statistics. From 1978-2003 the BOT has registered and FDI inflow of USS U4.9 million from China. And the Board of Investment (BOI) publishes its listings of approved investment projects (contracted project) according to the international standard of minimum 10 percent foreign equity stake, reported in 1987 - 2005, 145 Chinese companies and past approval of 161 projects, with the value of 31,505.7 million baht. Thai Ministry of Commerce reported in 1997-2003 that there were 60 companies. And the data from Chinese-Thai Enterprises Association revealed that there were 58 Chinese companies. And the data from China, MOFCOM reported in 1979-2003 that there were 245 projects of Chinese investment in Thailand with the value of US$ 263.8 million. In contrast, the Chinese embassy in Thailand reported that there were only 69 Chinese companies in Thailand, whereas the data from UNCTAD in 1979 - 2002 revealed that the Chinese companies invested 234 projects in Thailand with the vali ; of US$ 214.7 million (Table 1)

2.2 Development of China's Outward FDI
The appropriate way of analyzing the data is to group years into the segments corresponding to the natural development of the Chinese Outward policy since 1978. The changing political rational behind Chinese FDI 1978 has gone from "getting-in" to "going-out".

Table 1 The Comparison of Available Company listings and official FDI Statistics

Source: Selected statistics and company lists UNCTAD (1979 - 2002); MOFCOM