The role of foreign direct investment in emerging economies should go roughly as follows. In the early stages of development, countries import FDI and the technical and management expertise that goes with it. As they become richer, they develop domestic companies that invest abroad themselves.
China, having followed the first part for some decades, appears to be balking at the second. Beijing is planning tough restrictions on outbound FDI via a clampdown on the foreign exchange purchases necessary to execute deals.
This makes some short-term sense as a solution to two of China’s problems. One is the risk of destabilisation arising from rapid capital outflows. The second is the growing threat that overseas acquisitions by Chinese companies will be blocked by foreign governments, inflaming tension with its trading partners. That the administration of Xi Jinping, the Chinese president, has to resort to tactics like this underlines the contradictions and inefficiencies of its approach to economic policy.