Outward direct investment by Chinese state-owned enterprises

Abstract

PurposeThe paper aims to investigate outward foreign direct investment (OFDI) by Chinese state-owned enterprises (SOEs), aiming to unveil whether the Chinese OFDI policy acted as a country-specific advantage (CSA) that has been turned by Chinese firms, particularly SOEs, into a firm-specific advantage (FSA).Design/methodology/approachUsing a data set spanning 18 years (1996-2013) on international mergers and acquisitions (IM&As) by Chinese companies (SOEs and private-owned enterprises – POEs) and drawing on extant literature, the paper systematically compares the behavior of Chinese SOEs and POEs, aiming to identify differences in their behavioral patterns that indicate that SOEs have benefitted more from policy-induced advantages than their private counterparts.FindingsAmong other aspects, significant differences were found regarding the behavior of SOEs vis-à-vis POEs that seem to show that SOEs had greater support from public entities, leading them to close larger deals and purchase more companies/stakes in cash; acquire firms with greater debt (implying higher interest payments); and purchase smaller stakes than POEs (indicating that there are other objectives than control). This lends support to the assumption that Chinese SOEs are “sitting on piles of cash”, and that the availability of capital acted as a CSA that has been transformed into an FSA by the companies involved, notably by SOEs.Research limitations/implicationsThe comprehensive and large-scale data set used includes wholly owned SOEs, leaving out of this research partially owned SOEs. The findings of this paper have implications for the discussion on competitive neutrality and for the academic, managerial and public policy debate.Originality/valueTo the best of the authors’ knowledge, this is the only study, to date, that shows systematic differences in financing patterns of OFDI (notably via IM&As) by Chinese SOEs and POEs, among other behavioral characteristics of both types of companies when conducting FDI abroad, linking that to CSAs and FSAs induced by CSAs.