signal
Learning from a slew of poor-performing overseas investments, Going Global, rebranded as 'capacity cooperation', will insert Chinese capital and know-how into partner ventures rather than dominate whole value chains. Rolling out ahead of Belt and Road, it will take a more calibrated approach to exporting capacity.
intent
Promoted on recent tours to Europe, Latin America and central Asia, 'international production capacity cooperation' is a re-geared, centrally-orchestrated effort to complement domestic economic reforms moving Chinese industry up the value chain.
at home, it will
- focus on 12 key manufacturing industries: iron and steel, nonferrous metals, building materials, railway, power, chemicals, textiles, automotive, communications, engineering machinery, aerospace, shipbuilding and marine engineering, which will be prioritised for finance and support to go global
- start with the northeast (Hebei, Jilin and Liaoning), traditional manufacturing base of China, but currently among the slowest growing areas
- encourage inward FDI in Western China
- reduce overcapacity by partnering with firms overseas
- elevate Chinese industry in global value chains through boosting technology and investment
overseas, it will
- promote high-speed rail and major construction projects
- develop third country industries and markets (to sustain China’s growth)
preliminary cooperation frameworks
1+1+1>3 framework
- China’s mid-range capabilities coupled with cutting-edge expertise from developed countries to be deployed in third-party markets. Cooperation is positive all round. China can move up the value chain; developed countries can increase exports, creating employment; third-party markets will access equipment at greater value for money
3x3 framework China-Latin America
- 3 channels of infrastructure connectivity: logistics, electric power, IT
- 3 actors: company, society and government. Capacity cooperation should be market directed, displaying principles of public-private partnership
- 3 financing channels: funds, credit and insurance
context
16 Oct 2013: State Council Guiding Opinions sets 8-point plan for reducing overcapacity, including developing a foreign market.
16 Dec 2014: China's NDRC and Kazakhstan sign a $230 mn cooperative production capacity agreement covering rail, cement, energy, mining and chemicals.
28 Jan 2015: The expression ‘capacity cooperation’ appears on the agenda of a State Council meeting on pushing high-speed rail and nuclear overseas.
28 Apr 2015: Foreign Minister Wang Yi 王毅 delivers keynote speech on ‘Industrial capacity cooperation for win-win outcomes: Hebei in focus'
- Hebei construction materials companies have launched 13 projects with countries such as South Africa and Bosnia-Herzegovina
16 May 2015: State Council ‘Guiding Opinions’ defined capacity cooperation (and assembly manufacturing).
18 May 2015: State Council approved NDRCs ‘Opinions’ calls for speeding up capacity cooperation mechanisms globally, strengthening overall guidance.
19 May 2015: State Council releases ‘Made in China 2025’ policy ticker
20 May 2015: Li Keqiang 李克强 proposes ‘3x3 model’ for China-Latin America cooperation (Brazil, Colombia, Peru, Chile) stressing production capacity cooperation.
29 Jun 2015: Attending China-EU Summit, Li Keqiang calls for more collaboration in international production capacity; introduces the 1+1+1>3 Cooperation Framework.
7 Jul 2015: NDRC signs a cooperation agreement to assist Hebei in promoting capacity cooperation.
8-10 Jul 2015: Xi Jinping 习近平 proposes trade and production capacity cooperation at Shanghai Cooperation Organisation summit
7 Aug 2015: State Council ‘Opinions’ on speeding up agriculture modernisation suggests bolstering international production capacity.
31 Aug 2015: MFA launches capacity cooperation forum in Changchun, Jilin to boost its Going Global capabilities.
31 Aug 2015: NDRC Liang Linchong 梁林冲 calls for rolling out capacity cooperation in 5 key areas: assembly manufacturing, macro guidance to firms, financing mechanisms, cooperation mechanisms and and third-party markets with developed countries'.
outlook
Framed as direct equity investment, M&As and public-private partnerships, agreements have been signed and initiatives are in train. Capacity cooperation will be
- underpinned by top political commitment
- a standard item on high-level overseas visits, boosting expectations of keenly-desired high-speed rail contracts
- a new feature at international meetings. Already scheduled at the Dalian WEF, 8-11 Sept, it will be promoted at the 2016 Hangzhou G20 summit
- on the agenda of the 13th 5-year plan. Cooperation will expand beyond the 12 priority sectors, to include agriculture and information technology
but as another attempt to fix internal problems by turning outwards
- centrally directed projects will not necessarily be any more welcome
- greater direction and control will not better integrate Chinese practice to the wider world
- information silos will persist between Chinese research, governance and firms
roundtable
Capacity cooperation: the key to China's economic transition
Ding Xuedong 丁学东 | Eastern Daily
China's shift to a capital-exporting country will take time. This phase, a transition from the 'world's factory' to a capital-exporting nation, is defined by 'optimising capacity allocation + capital export'. This means maintaining comparative advantage as the 'world's factory', upgrading industry, developing technology, standards and services that complement increasing capital export. Chairman and CEO of China’s sovereign wealth fund, Ding Xuedong, argues that promoting international cooperation in production capacity will help China move up the global value chain. ticker
Investigating and managing potential risks central to international capacity cooperation
Zhao Yumin 赵玉敏 | People's Daily
Zhao Yumin MoF Research Institute for International Trade and Economic Cooperation highlights possible risks facing China’s latest initiative on capacity cooperation. Strengthening it will allow China to exploit superior resources and boost economic growth while achieving win-win results with other countries. In capacity cooperation, unlike other transnational business activities, risks and opportunities coexist. For Chinese industries to go global, they should identify, analyse and manage possible risks so as to minimise losses. Potential risks include political, economic, legal and regulatory differences among countries.
COFCO boss reflects on capacity cooperation in agriculture
Ning Gaoning 宁高宁 | East Money
Reflecting on COFCO’s Going Global strategy, CEO Ning Gaoning finds that while capacity cooperation is important, Chinese firms need to establish a solid foundation before venturing out. China should exploit the full potential of global markets so as to meet domestic demands for food quality from international sources at competitive prices. ticker
in the spotlight
Wang Yi 王毅 | Foreign Minister
Wang has responded to Premier Li Keqiang's 李克强 Capacity Cooperation initiative with alacrity, spreading the word both at home and abroad. This blazes a new trail for MFA as a domestic player. Breaking new ground with an appearance in Hebei promoting Capacity Cooperation for local industries, Wang’s keynote speech indicates the devolution of economic responsibilities to individual provinces. He sent his director of international economy on a similar mission to Changchun, Jilin.
Ding Xuedong 丁学东 | China Investment Corporation CIC
Head of China’s sovereign wealth fund set to underwrite many of the projects under the Capacity Cooperation initiative, Ding is cautious in his support. Important as it is for domestic industries to internationalise, he argues, domestic capabilities should be a focus of reform. Comparative advantage as the world's factory should be strengthened while ensuring quality of exports matches their quantity.
Gu Dawei 顾大伟 | National Development and Reform Commission
An innovation and technology specialist, NDRC Foreign Investment director Gu wants projects under the Capacity Cooperation Initiative to export advanced industrial capacity rather than outdated industries or low-end manufactured products. Gu also helped set up a new subsidiary company under the state-owned CIC to help domestic enterprises invest abroad. This fund, he says, will likely outvalue the Silk Road Fund and has started operation although it has not yet been named. To boost overseas investment, overseas assets will be recognised as collateral within China to be used for mortgages in China.