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Economic and Social Impact of Chinese Investment in Turkey
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Economic and Social Impact of Chinese Investment in Turkey

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Presentation at "China and Turkey at the Crossroads of the Global 21st Century" conference held in Shanghai on 7-8 November 2013.

Presentation at "China and Turkey at the Crossroads of the Global 21st Century" conference held in Shanghai on 7-8 November 2013.

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Economic and Social Impact of Chinese Investment in Turkey Economic and Social Impact of Chinese Investment in Turkey Presentation Transcript

  • The Economic and Social Impact of Chinese Investment in Turkey Dr. Altay Atlı Bogaziçi University China and Turkey in the Global 21st Century: The 2nd China-Turkey Forum Shanghai, November 7-9, 2013
  • “We can get rich if we manage to sell one single orange to every Chinese…” (President Kenan Evren, during his visit to China, December 1982).
  • “What are we selling to China and what else can we sell? Take hazelnut, a population of 1.2 billion, and if each of them consumes one single hazelnut… No, this will not work. We have to get involved in its industry…” (Minister of Economy Zafer Çaglayan, during his visit to China, August 2009).
  • Foreign direct investment - Definition “FDI reflects the objective of obtaining a lasting interest by a resident entity in one economy in an entity resident in an economy other than that of the investor. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise. Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated.” (OECD, 1999. Benchmark Definition of Foreign Direct Investment. 3rd ed., p. xv) Expanded definition: + contracting business. (e.g. large-scale infrastructure projects, construction business, etc.)
  • Foreign direct investment – Impact (on host country) Benefits: •Macroeconomic growth. (Spar, 1999; Stephens, 2002; Mencinger, 2003; Herman et al., 2005; Wang, 2009) • • • Capital formation leads to growth. Income generating assets. Raising total factor productivity. •Increased competition. (OECD, 2002; Hansen & Rand, 2006; OECD, 2008) • • • Creating a more competitive business environment. New business and management practices. Pressure on factor prices. •Technological spillovers and innovations. (OECD, 2002; Herman et al., 2005, Moura & Forte, 2010) • • Technology transfer. Investment brings with it the skills and knowledge necessary to make technology useful.
  • Foreign direct investment – Impact (on host country) Benefits: •Increased employment and human capital formation. (OECD, 2008) • • • Job creation. Upward pressure on wages. Enhances human capital through the transfer of technical knowledge. •International trade integration. • • (Rondinelli, 2002; Moura & Forte, 2010) Impact on exports and imports. Regional production networks. •Improved social and environmental conditions. (Rondinelli, 2002)
  • Foreign direct investment – Impact (on host country) Possible negative effects: •Discriminative practices, violation of labor rights. • • (OECD, 2008) Practicing unfair competition when taking advantage of low wages and labor standards abroad. Violation of labor rights in developing countries where governments fail to enforce such rights effectively. •Environmental degradation. (Mabey & McNalley, 1998) •Cultural tension between the home and the host countries. (Rothgeb, 2002; Herman et al., 2005) • • Due to business practices. Due to interpersonal contacts. •Hindering the development of technical skills by local firms. (Herman et al., 2005)
  • Turkey as a recipient of foreign direct investment (US$ billion) Inflows of FDI into Turkey Source: Central Bank of Turkey
  • Turkey as a recipient of foreign direct investment (US$ million)
  • Turkey as a recipient of foreign direct investment Largest sources of FDI inflows into Turkey (annual) Country Amount (US$ million) 1 United Kingdom 1,996 2 Austria 1,491 3 Luxembourg 1,250 4 The Netherlands 1,176 5 Germany 532 6 Malaysia 461 7 Switzerland 445 8 United States 404 9 Azerbaijan 339 10 Lebanon 315 China 14 .. .. Source: Central Bank of Turkey; and Statistical Bulletin of China’s Outward Direct Investment.
  • Turkey as a recipient of foreign direct investment Main destinations of FDI outflows from China (annual) Country Amount (US$ million) 1 Hong Kong 35,654 2 British Virgin Islands 6,208 3 Cayman Islands 4,936 4 France 3,482 5 Singapore 3,268 6 Australia 3,165 7 United States 1,811 8 Cambodia 1,757 9 United Kingdom 1,420 10 Luxembourg 1,265 Turkey 14 .. .. Source: Statistical Bulletin of China’s Outward Direct Investment.
  • Chinese Foreign Direct Investment Stocks in Europe and the MENA Region, 2011 (US$ million) Source: Prepared using data from 2011 Statistical Bulletin of China’s Outward Direct Investment 1 1,531 167 8 1 4 49 157 2,530 665 140 2,400 3,723 33 92 4 6 89 67 25 5 6 29 26 475 8 5 1 4 1 5 3,760 29 201 449 389 31 126 1 73 109 406 3 15 2 24 13 1,060 68 403 606 30 1,351 93 883
  • Chinese investment in Turkey There are 551 companies with Chinese capital registered in Turkey. Wholesale trade: Retail trade: Hotels and restaurants: Manufacturers of motor vehicles: Construction: Mining: Generation of power, gas, steam: Trade of motor vehicles: Transportation and travel agencies: Computer technologies: Telecommunications: Machinery: Health services: Textile products: Manufacturers of radio and tv sets: 250 companies. 54 33 33 29 Total number of 25 companies 10 with foreign 10 capital: 33,100. 9 9 8 6 5 5 These numbers 5 Others: 50 do not include contractors!
  • Chinese investment in Turkey Case 1: Huawei • Global ICT solutions provider. • Entered the Turkish market with a representative office opened in Ankara in 2002. Headquarters eventually established in Istanbul. • Turkey serves as a base for Huawei’s operations in Central Asia, the Caucasus, Ukraine and Belarus. • Provides telecommunication infrastructure services for landline and GSM operators. • • The sole supplier for the carrier networks of Türk Telekom. Serves one third of the infrastructure of Turkcell.
  • Chinese investment in Turkey Case 1: Huawei • Employs 750 personnel in Turkey. • 85% of them are local employees. • R&D center opened in Istanbul in 2010. • The largest R&D center of the company outside China. • US$ 50 million initial investment. + US$20 million invested every year. • Invests in university-industry cooperation. • Opened the New Generation Telecommunication Technologies Lab in cooperation with Istanbul Technical University in 2008. • Plans production in Turkey.
  • Chinese investment in Turkey Case 1: Huawei Benefits Increased competition • The company’s entry into the Turkish market and the large market share it has achieved in a short time span has increased the competition. • It will also increase competition in the electronic appliances market when it starts production. Technological spillovers and innovation • The main benefit that Turkey derives from the company’s presence. • Its emphasis on R&D is an important plus. Increased employment and human capital formation • Not a large-scale employer. • Emphasis on local employment is a plus. • Substantially adds skills to employees, thus contributing to human capital formation.
  • Chinese investment in Turkey Case 1: Huawei Benefits (cont’d) International trade integration • • Exporter of software. The company’s regional structure can drive intra-region trade. Improved social • Supports university-industry cooperation. and environmental conditions Possible negative effects Discriminative practices, violation of labor rights • No reported case.
  • Chinese investment in Turkey Case 1: Huawei Possible negative effects Environmental degradation • No significant environmental effect. Cultural tension • No reported case. • “We are willing to include local partners in the Hindering the development of R&D process” (Sun Ming, Director of Huawei Turkey) technical skills by local firms
  • Chinese investment in Turkey Case 2: China Machinery Engineering Corporation • Active in engineering, procurement and construction energy projects. ⇒ The world’s sixth largest contractor. • Entered the Turkish market in 1984 with a number of smallscale hydro-energy projects. • In 1994, built coal mine infrastructure. ⇒ First time that Chinese financing was used by Turkey. • In 2001, entered Turkey’s thermal energy market. Completed so far 12 power plants in Turkey. • Employs Chinese workers at construction sites in Turkey. • Plans to become a direct investor (US$ 100 million initial investment).
  • Chinese investment in Turkey Case 2: China Machinery Engineering Corporation Benefits Increased competition • The company’s cost advantage is hard to compete against. • Contributes to China’s rise in Turkish large-scale infrastructure projects. • “We need to work more, watch less TV, and produce technology. If you can’t do it yourself, those guys will come from China, build the plant, and leave” (Mehmet Alim, Mayor of Çatalagzı). Technological spillovers and innovation • “The Turkish market was dominated for a long time by the products and technologies of the West. People did not know then about China’s products and technologies.” (Zhang Chun, chairman of CMEC) Increased employment • Does not employ local workers.
  • Chinese investment in Turkey Case 2: China Machinery Engineering Corporation Benefits (cont’d) Int. trade integration • Improved social and environ. conditions • Bringing the Turks and the Chinese closer together? Example: 1,500 Chinese workers in Çatalagzı, Zonguldak (or 450 workers in Şırnak). • Not directly contributing to trade. “Most of the Chinese one encounters on the streets are not workers, but white-collars, such as technicians and administrative officers. It is those white-collars who socialize with the local people, whereas the manual laborers usually stay in their dormitories, cook their own food and have their own entertainment. In time the workers will socialize more with the locals. There will be Chinese restaurants opening in Zonguldak, there will be interracial marriages, and only then will we be able to see if Turks and Chinese are really getting well along together.” (Mine Akman, Chinese-speaking IT professional, native of Zonguldak).
  • Chinese investment in Turkey Case 2: China Machinery Engineering Corporation Possible negative effects Discriminative practices, violation of labor rights • Labor conditions under criticism. • Employment of only Chinese workers under criticism. • “Importing workers from China at a time when there are a lot of unemployed in Çatalagzı is questionable. Bringing technical personnel from China is one thing, importing workers to take advantage of cheap labor is another.” (Harun Akın, Zonguldak MP from CHP ) Environmental degradation • In compliance with Turkish regulations.
  • Chinese investment in Turkey Case 2: China Machinery Engineering Corporation Possible negative effects (cont’d) Cultural tension • People-to-people encounters not always problem free. • Lack of knowledge can and does reinforce prejudices and stereotypes. • “If there is an accident in the future, we will Hindering the development of again have to wait for teams from China to technical skills come? Do not let us depend on the Chinese!” (Senol Cakar, head of the local Association of Social by local firms Solidarity and Development).
  • Conclusion • China is not a major investor in Turkey. Therefore both the positive and negative effects of Chinese investment are minor. • However, Chinese investment in Turkey is growing fast. It is important to understand its characteristics and patterns, as it is likely to have a greater weight in the near future. • Lack of knowledge and acquaintance is a major obstacle against Turkish-Chinese economic relations. • Economic and social impacts of investment can mutually reinforce each other to create a virtuous circle.
  • Photo © Zaman altay.atli@gmail.com