China’s ODI Motivations, Political Risk, Institutional Distance and Location Choice

Jing Han,Ke Li,Xiaoyuan Chu

doi:10.4236/tel.2014.47068

Abstract

Utilizing an outward foreign direct investment (ODI) data sample of 48 countries and districts from the year 2003 to 2010, and based on institutional distance theory, a resource-based view, an institutional-based view and political risk management theory, this paper applies multiple regression equations to explore the linkages between China’s ODI motivations, political risk, institutional distance and location choice. We obtain the following conclusions: 1) there are three different motivations affecting China’s ODI location choice, namely, resource-seeking, strategic asset-seeking and market-seeking motivations; 2) generally, China’s multinational enterprises are inclined to invest ODI in countries with high political risk and short institutional distance; and 3) multinational enterprises with different ODI motivations have diverse location choices. For resource-seeking foreign investment, Chinese multinational enterprises tend to invest in countries with high political risk and short institutional distance. For strategic asset-seeking foreign investment, Chinese multinational enterprises tend to avoid countries with high political risk and short institutional distance. For market-seeking foreign investment, multinational enterprises of China tend to avoid countries with high political risk and short institutional distance.

Highlights

China is a developing country with an emerging economy, and its outward foreign direct investment (ODI) preferences and behaviors have been the subject of research
China’s ODI multinational enterprises (MNEs) tend to invest in countries with high political risk
For Chinese resource-seeking foreign investment, MNEs tend to invest in countries with high political risk and short institutional distance

Summary

Introduction

China is a developing country with an emerging economy, and its outward foreign direct investment (ODI) preferences and behaviors have been the subject of research. By the end of 2012, the value of China’s foreign direct investment ranked third worldwide and first among developing countries. In the course of its rapid ODI development, China’s ODI shows many features that traditional theory cannot explain. Chinese MNEs actively invest abroad with great success without ODI advantages. Another example is that the effects caused by host-country institutional factors for China’s ODI MNEs are inconsistent with the expectations of traditional theories. Compared with the ODI of developed countries, China’s ODI shows preferences for high political risk in location choice

Literature Review

Data and Methodology

Multiple Regression Equation Model

Estimation Results

Conclusions