In a paper produced for the National Bureau of Economic Research researchers believe they have collated the most comprehensive database of China’s foreign ownership to date.
They analyzed over 161,000 firms in 159 countries over the period 2012~2021 and unlike prior studies that followed reported Foreign Direct Investment numbers they’ve gone deeper.
Looking through holding company structures they report China’s holdings of assets globally are larger than had been previously reported. They find China at the end of 2021 owned 3% of global corporate assets and had been growing exposure by 20% per annum.
Other important findings:
- Targets have been predominantly R+D intensive or supply chain linked firms.
- Europe and N. America account for around 80% of Chinese assets.
- Acquired firms tend to experience an increase in R+D spending and capital investment but a decrease in profitability.
- Patenting increases at acquirer firms back home however. The researchers call this process ‘spillback’.
The paper suggests China is operating a non-classical business model where profit maximization is not the immediate or primary goal. Contrasting American firms they note that when a U.S. company makes an acquisition a rise in profitability at the acquired firm often occurs but China is playing a different game.
The paper contributes usefully to a debate which is so often poorly informed and should allow policy makers to analyze the China ‘threat’ more carefully.
Below is a telling graphic from the work that shows how significant China investment has been across a number of industries in recent years.
You can read the paper in full via the following link China’s Global Ownership.
Happy Sunday.