What attracts China’s contracts to Latin America and the Caribbean? An empirical study of the determinants of Chinese contracts

Abstract

As China’s economy has reached the stage of ‘New Normal’, Chinese companies are increasingly seeking opportunities overseas. In the context of the slow recovery of world economy, China’s outward economic activities have found themselves in many parts of the globe, including the Latin America and the Caribbean (LAC) region, some of the farthest places away from China. While many scholars have conducted extensive studies on China’s trade and foreign direct investment (FDI) in Latin America and the Caribbean, this paper focusses on Chinese contracts in the region, a topic that has been rarely studied. Using both random-effects and fixed-effects models covering 30 LAC economies during 1998–2015, the multivariate panel regressions show that among numerous determinants, Chinese companies prefer to undertake projects in the countries that are economically more advanced and more populous. In addition to the level of development and the size of population, those that have natural resources, expansionary economy, and political openness tend to have Chinese contracts completed. The above, however, is true of only the countries with which China has diplomatic relations. For the countries that recognise China’s Taiwan ‘diplomatically’, Chinese contracts do not seem to be as much economically determined as those that recognise People’s Republic of China (PRC) diplomatically. Politics appear to interfere with contractual decisions except in the following categories: mineral resources and an expansionary economy.