Who Follows Whom? A Location Study of Chinese Private and State-Owned Companies in the European Union

Abstract

This paper analyses the location decision of Chinese manufacturing firms for their greenfield investments in Europe. The analysis draws on neo-institutional theory to formulate hypotheses on the importance of mimicry in Chinese firms’ location decisions and how this differs between private and state-owned enterprises. The analysis is conducted at the subnational (regional) level while taking into account economic integration across regions. The results confirm the importance of mimicry and show that Chinese firms not only follow previous Chinese investors in the same sector but also in unrelated sectors. Furthermore, Chinese investors only follow previous investments by Chinese private-owned companies while the results also show that Chinese private-owned companies generally have a higher tendency than state-owned companies do to follow prior investment decisions by compatriot firms. As the empirical evidence demonstrates the importance of bandwagon effects, the implication is that investment decisions can have a lasting influence on the geographical pattern of Chinese investments across regions.