Reversing the Bamboo Network: Chinese capital, geopolitics, and institutions in Southeast Asia

Abstract

ABSTRACT This study applies a comparative political economy approach to institutional theory by considering institutional convergence and geopolitics as determinants of Chinese outward foreign direct investment (OFDI). Using country-level data for a sample of Asian countries, including Bamboo Network countries or countries with prominent overseas Chinese business networks in Southeast Asia, and other countries identified in the Varieties of Capitalism literature, the dynamic panel analysis from 2007 to 2019 finds that Chinese OFDI is significantly positively affected by the interaction between greater formal institutional distance from China and a similar state-backed institutional configuration. Conversely, active territorial disputes with China and formal arbitral proceedings against this country have significant and negative effects. This study finds that Chinese OFDI in general and specifically the reversal of the Bamboo Network, or the flowing back of Chinese capital into Southeast Asian economies that initially invested in China’s rise and integration into the global economy, are conditioned upon geopolitical tensions and convergence in terms of institutional configuration but not institutional distance.