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China’s Firms Are Leaving the Country

Michael Parkin

Chinese firms are investing abroad in projects that cost a total equal to 1% of China’s GDP. Key investments are in factories in Southeast Asia—Vietnam (low-value goods), Indonesia (minerals), Malaysia, and Thailand (EV projects)—often accompanied by importing Chinese workers. –economist.com, January 04, 2025

Answer the following questions to check your understanding of the story.

How are Chinese investments in physical assets abroad recorded in the balance of payment accounts?

They are recorded as an outflow in the ___________ of China and as an inflow in the ____________ of the countries receiving investments.

Wrong! - What is an example of an investment in physical asset by China in another country? Where in China’s balance of payments account is this investment recorded: in the current account or the capital and financial account? Where in the other country’s balance of payments account is this investment recorded: in the current account or the capital and financial account?

That's Right! - Investment in physical assets abroad is recorded in the balance of payments capital and financial account. China’s investments in physical assets in other countries are a capital and financial account outflow for China and a capital and financial account inflow for receiving countries.

Where are the final goods and services produced by Chinese-owned factories and Chinese workers abroad included in National Income and Product Accounts?

The goods and services produced by Chinese-owned factories and Chinese workers abroad are included in China’s ______ and in other countries’ ______.

Wrong! - What is GDP and what is GNP? If China builds a factory in Canada to build cars, what is the value of the cars produced called in Canada? The value of all goods produced in Canada is part of Canada’s GDP.

What is the value produced by a China-owned factory in Canada called in China? The value of China-owned production located in Canada is part of China’s GNP.

Well Done! - A country’s GNP is the value of the final goods and services produced anywhere in the world by factors of production the country owns. GDP is the value of the final goods and services produced within a country. Any good or service produced by a Chinese-owned factory or a Chinese worker within other countries is included in China’s GNP and other countries’ GDP.

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