Chinese Returnees and High-Tech Sector Outward FDI: The Case of Changzhou

Abstract

The rapid growth and high levels of internationalization by Chinese firms raise a natural interest in the study of the factors that have led to the notable international presence of Chinese firms. To contribute to this effort, we use data from the 2008–10 survey of China's high-tech firms, conducted by the Chinese Ministry of Science and Technology, to estimate the determinants of Chinese firm outward foreign direct investment (OFDI). In our analysis, the primary independent variables include high-tech intensity, human capital acquisition, and institutional factors. We also controlled for various firm characteristics such as firm age, total value of fixed assest, and firm ownership. Estimation from our fixed-effects model uncovers a number interesting patterns in OFDI outcomes. Most notable among the significant determinants of OFDI, the number of Chinese returnees employed by a firm seems to be more important than tax reduction policies. Further, the influence of the Chinese returnees have a stronger effect on non–state-controlled firms than they do for state-controlled firms. This finding is intuitive, because the Chinese returnees who were trained in the West have an understanding of product markets, labor markets, financial markets, language and business culture, and trade laws in both China and the West. Their unique skill sets and knowledge appear to serve as an important catalyst in the growth of OFDI and internationalization by Chinese firms.