Chinese Foreign Direct Investment Research Articles

New Architecture of Foreign Direct Investment Regulation in the European Union

This article examines current trends in financial governance within the European Union (EU), focusing on the regulation of foreign direct investment (FDI). The adoption of supranational mechanisms for EU FDI screening through Regulation 2019/452 not only highlights the expansion of multi-level governance, as promoted by the European Commission, but also reconfigures the EU's role as a global actor in investment transactions. This shift directly impacts a wide range of stakeholders.The study aims to explore the institutional architecture established by Regulation 2019/452 and address the research question: Why has the EU transitioned from a neoliberal approach favoring free capital movement (positive integration) to a framework emphasizing common European monitoring rules (negative integration)? The theoretical framework combines the concept of multi-level governance and securitization theory, underpinned by new institutionalism, which facilitates an analysis of how institutions, particularly the European Commission, articulate and advance common interests within political frameworks. The findings reveal that the securitization of Chinese FDI served as a critical tool for the Commission to legitimize its push for supranational regulation. Regulation 2019/452 is identified as “entry-level legislation,” designed to be amended through its built-in revision mechanism, ultimately broadening the Commission’s exclusive competencies in this area. This trajectory was partially confirmed by the Commission’s January 2024 proposal to strengthen the Regulation. The analysis situates this shift within a broader global context, demonstrating how the EU's move from neoliberalism to protectionism mirrors trends in other major economies, such as the United States, China, and India, all of which employ FDI monitoring mechanisms. The article also identifies key events that acted as catalysts for the EU’s geopolitical reassessment of foreign investment—from a stance of openness to recognizing potential threats to collective security and public order. It draws a parallel with the Commission’s use of securitization discourse in the energy sector, which contributed to the partial communitarization of energy policy through multi-level governance.

China's Investment in Bangladesh: Backdrop of Debt Trap Diplomacy

This research investigates the implications of Chinese investment in Bangladesh, particularly in the context of concerns surrounding debt trap diplomacy. As China extends its Belt and Road Initiative (BRI), Bangladesh has emerged as a significant recipient of Chinese loans and investments, encompassing infrastructure projects such as ports, power plants, and highways. While these investments are poised to bolster Bangladesh's economic development, they also raise concerns about the potential for unsustainable debt levels and the erosion of sovereignty. This study delves into the economic, political, and social ramifications of Chinese investments in Bangladesh. Through a mixed-methods approach combining quantitative analysis of debt sustainability indicators and qualitative assessments from stakeholder interviews, the research examines whether Chinese funding is leading to a debt trap scenario. Preliminary findings suggest that while Chinese investments have accelerated infrastructure development, they have also increased Bangladesh's debt burden and dependency on China. Furthermore, the strategic placement of investments suggests potential geopolitical motivations behind Chinese funding. This research aims to contribute to the broader discourse on the impact of Chinese foreign direct investment in developing countries, offering policy recommendations for Bangladesh to navigate the complexities of foreign financing without compromising its economic sovereignty. The study underscores the necessity for rigorous debt management and transparent investment policies to mitigate the risks associated with large-scale foreign loans.

Evaluating the Impact of Chinese FDI in the Energy Sector on Green GDP Growth: A Spatial Econometric Analysis of MENA Countries

This study analyzes the impact of Chinese foreign direct investment (FDI) in the energy sector on the green GDP (GGDP) growth of seven Middle East and North Africa (MENA) countries based on data from 2009 to 2019. Using panel regression analysis, the study focuses on the effects of FDI, economic development level, population size, energy consumption structure, environmental regulation intensity, government fiscal expenditure, and the KOF Economic Globalization Index on GGDP growth. By comparing fixed-effects and random-effects models and applying the Hausman test to select the most appropriate model, the research indicates that the random-effects model is the most suitable. The results show that FDI, economic development level, and population size have significant positive effects on GGDP, while shifts in energy consumption structure also promote sustainable economic growth. In contrast, environmental regulation intensity and the globalization index have no significant impact on GGDP, suggesting that GGDP growth in MENA countries relies more on internal economic policies and the efficiency of resource allocation.

Assessing the Effects of Chinese Foreign Direct Investment on Green GDP Development in North and South American Regions

This study aims to investigate the impact of foreign direct investment (FDI) on the growth of green GDP (GGDP) in North America and South America. The research is based on a comprehensive dataset covering the period from 2009 to 2019, drawn from multiple countries. By employing a two-way fixed-effects model, the study analyzes the effects of key factors, including FDI, trade openness, economic development level, urbanization level, population size, and industrial structure on GGDP growth.The findings indicate that, in North America, both FDI and the level of economic development exert a significant positive influence on GGDP growth, whereas trade openness demonstrates a negative impact, suggesting that increased trade activities may exacerbate environmental pressures. In South America, while the level of economic development shows a significant positive correlation with GGDP, the effect of FDI is not statistically significant. The study recommends that policymakers focus on enhancing the effectiveness of foreign investment and implement stricter environmental protection policies to ensure that trade activities do not adversely affect the environment. Furthermore, there is an urgent need to adjust the current industrial structure to promote a transition toward more sustainable development models. Ultimately, this research emphasizes the importance of ensuring environmental sustainability while fostering foreign investment and economic growth to achieve long-term growth in green GDP.

The Normative Influence of the Belt and Road Initiative in Europe

This article analyses how the Belt and Road Initiative (BRI) is used as a tool to spread Chinese normative language and soft power in the European Union (EU), as well as the potential governance effects of the BRI. Through in-depth elite interviews and comparative qualitative analysis of the BRI Memoranda of Understanding (MoUs) between EU countries and China, it provides a comprehensive overview of the content of the MoUs, most of which are not publicly available. It finds that, while little normative influence can be seen, the MoUs represent a partially successful exercise of soft power. However, growing scepticism and even resentment towards China are emerging among EU BRI countries. This, paired with the securitisation of Chinese foreign direct investment that originated from the paradigm shift in EU trade policy towards economic security, has led to greater unity in the EU and a more antagonistic vision of China by its Member States.

Factors determining the emergence of environmental concerns regarding Chinese investment in the South America's extractive industries

This article focuses on analyzing environmental governance in the context of the growing economic relations between China and Latin America, with particular attention to Chinese Foreign Direct Investment (FDI) in the South American extractive industries. Using novel data that match Chinese investment and local environmental reactions, the results strongly support a positive correlation between institutional capacity for environmental protection in recipient countries and an increase in local environmental concerns. I find that the escalation of activity by Chinese companies with greater state participation in the extractive industries raises the probability of generating environmental concerns in affected communities. These findings significantly contribute to understanding the complex interactions between Chinese investments and environmental governance, providing an essential foundation for addressing environmental challenges associated with Chinese FDI in Latin America.

Efekty spillover chińskich inwestycji zagranicznych w Angoli i Zambii

SPILLOVER EFFECT OF THE CHINESE FDI IN ANGOLA AND ZAMBIAIn recent years, Chinese foreign direct investment (FDI) in Africa has attracted interest from both academia and the wider political world. Some postulate that Chinese companies – unlike Western corporations – have greater potential to initiate and carry out the structural transformation of the continent. Some researchers even indicate that thanks to the inflow of Chinese FDI, Africa may become “the next factory of the world”. The aim of this article is to analyse external effects (also called spillover effects) related to Chinese FDI in Africa using the examples of Angola and Zambia. According to the current state of knowledge, spillover effects are the most desirable effects of FDI in the host country, because the related increase in the productivity of local enterprises is key to the occurrence of structural transformation in local economies. The subject of the analysis presented in this article are three aspects (determinants) of spillover effects: (i) the potential of Chinese FDI to generate spillover effects, (ii) the absorptive capacity of local companies and (iii) local institutional settings favouring the occurrence of spillover effects. The findings indicate that due to the existence of weak and few linkages between foreign investors and local firms, spillover effects occur rarely and are relatively small. They are also not sufficient to initiate the transfer of valuable knowledge and technology. The presented research results were based on over 150 in-depth interviews and two rounds of surveys conducted among Chinese investors, Angolan and Zambian companies and representatives of local authorities.

Restrictions on Chinese SOE Investments for Data Security Reasons: The Case of Australia

In the digital age, the proliferation of investments made by Chinese state-owned enterprises (SOEs) has raised concerns among host countries about the risks that the investments could provide the Chinese government access to sensitive data involved in the target businesses, posing threats to their national security. Consequently, countries with sophisticated foreign investment screening (FIS) regimes, such as Australia, have imposed entry restrictions on Chinese SOE foreign direct investment (FDI) on the grounds of data security concerns. This article takes Australia as an example to investigate whether this concern has become a ‘panacea’ to justify any restrictions imposed by host states on Chinese SOE FDI in the digital age. Through in-depth examinations of Australia's reformed FIS regime and its application to Chinese SOE investments, this article demonstrates that data security has increasingly become a preferred justification for imposing restrictions on Chinese SOE investments. It argues that the data security justification is legitimate because of Chinese SOEs’ strong political ties, which have been significantly strengthened in China's ongoing SOE reforms, as well as China's prominent policy emphasis on data protection in recent years. However, measures should be taken to mitigate data security becoming a ‘minefield’ impeding the restoration of Australia–China investment relations.

Chinese and US Overseas Foreign Direct Investment and Democracy in the Developing World

This paper integrates the political influence and foreign capital literatures and examines the association between United States and Chinese overseas foreign direct investment (FDI) and host states’ political institutions. Using up to 109 developing countries from 2003 to 2019, and employing two-stage least squares selection modeling, we find negative and significant relationships between Chinese FDI and host states’ democracy while US FDI has positive and significant associations. Our study suggests Chinese FDI and host state leaders may mutually benefit from increasing authoritarianism, producing closer political and economic ties between China and the developing world.

Transformative Impacts of Chinese FDI: Catalyzing Technological Advancements and Economic Growth in Morocco

Foreign Direct Investment (FDI) plays a vital role in shaping the global economic landscape, driving growth, spurring technological innovation, and enhancing international competitiveness. This paper embarks on a deep dive into the multifaceted world of FDI, unraveling its core concepts, theoretical underpinnings, influencing factors, and profound economic impacts. Focusing on Morocco, the study traces the evolution and current status of FDI, showcasing the nation's strategic initiatives since the reform and opening up era aimed at magnetizing foreign investments. Through illuminating case studies of Chinese FDI in Morocco, the paper reveals the transformative effects on economic development, job creation, and technological transfer. The findings highlight the crucial need for optimizing the investment climate, boosting innovation capabilities, and fostering regional development to attract premium foreign investments and ensure long-term economic vitality.

Effect of Chinese outward FDI on youth unemployment in sub-Saharan Africa.

This paper investigates the effect of Chinese outward foreign direct investment (FDI) on youth unemployment in sub-Saharan Africa (SSA) by using a modified labour demand model to identify the investment sources that are helpful for reducing youth unemployment in the region. The model is applied to a panel of 42 countries for the period 2003-2021 using random-effect, and generalized method of moment (GMM) estimators for robustness check. Our results suggest that Chinese FDI has direct short-term reducing effect on youth unemployment in SSA. The direction of China's capital investment to infrastructure development and other labour-intensive activities leads to immediate reduction in youth unemployment. However, overtime, due to absence of linkages with domestic firms, and thus lack of demand effects, Chinese FDI becomes insignificant for employment creation. Our results also indicate that Other FDI does not lead to significant reduction in youth unemployment both currently and overtime. Our analysis gives partial support to the argument that the impact of Chinese FDI may differ from those of developed countries. Finally, we could not find evidence that the effect of FDI on employment depends on host country human capital and institutional quality. Several specifications of the empirical model are tested, and explanations are provided for the results. Policy implications are highlighted, especially the need to attract more job absorbing FDI and improve domestic absorptive capacity.

Chinese FDI outflows and host country environment

This study provides first evidence on the effects of Chinese FDI (Foreign Direct Investment) outflows on host country environments. The study draws upon a comprehensive dataset covering aggregate Chinese FDI outflows and sector specific data into 65 host nations over the 2007–2019 period. Employing a STIRPAT (Stochastic Regression on Population, Affluence and Technology) model and several different techniques including DID (Difference-in-Difference), pooled OLS (Ordinary Least Squares), quantile regression, IV (Instrumental Variable) estimation, threshold and Tobit regression, the findings suggest that Chinese FDI leads to an increase in host country CO2 (Carbon Dioxide) emissions, aligning with the pollution haven hypothesis at the aggregate level. A closer investigation at the development regime and sectoral levels indicates that in the low development regime, FDI inflows into the financial and real estate sector increase emissions. Conversely in the high-income regime, Chinese FDI into the entertainment sector is associated with an increase in carbon emissions. Chinese FDI is further found to lead to an increase in emissions in countries with a per capita GDP (Gross Domestic Product) of below USD72041.7. However, as per capita income rises above USD72041.7, FDI leads to a fall in carbon emissions.

Follow the Giver: Is Chinese MNEs’ Investment in Africa Linked to Official Aid?

AbstractDoes Chinese aid to African countries trigger Chinese foreign direct investment? Bridging the literature on the impact of foreign aid on foreign direct investment (FDI) and that on state ownership, we consider FDI by China's state-owned enterprises (SOEs) compared with that of its privately owned enterprises (POEs) and find FDI by the former is more likely to follow Chinese governmental aid to Africa. Borrowing from institutional theory, we posit that FDI by SOEs follows political imperatives while FDI by POEs pursues market motives. Using data from multiple sources on 3,760 Chinese FDI projects in Africa between 2001 and 2015, we find a correlation between SOE FDI and government aid than that of POEs; that aid has a greater impact on the probability of FDI when the policies of the host country and those of China are in sync, especially in the case of SOEs; and that in low-investment-risk countries the link between aid and investment is weakened, especially in the case of POEs. The results are robust and consistent across different measures and analyses. We contribute to the literature on the relationship between aid and FDI, as well as to that on varieties of capitalism.

Chinese Overseas Foreign Direct Investment and Online Digital Freedom in Developing Countries

Although studies have shown China’s growing influence on developing countries’ policies, little empirical work has considered the relationship between Chinese overseas foreign direct investment (FDI) and host countries’ online digital freedom. Considering as many as 112 developing countries from 2003 to 2019, and using a two-stage least squares selection modeling approach, we find an association between Chinese FDI and four types of limits on online digital freedom. Conversely, when we substitute global FDI (excluding Chinese FDI), we obtain different results, suggesting there is something unique about Chinese multinational corporations and online digital freedom. Our research indicates that China and host states’ domestic leaders mutually benefit by restricting online digital freedom.

The impact of Chinese foreign direct investment and environmental tax revenues on air degradation in Europe: a spatial regression approach, 2000-2020.

This study analyzes air pollution through the effects of China's FDI in 27 European countries over a 20-year period, with a focus on the impact of environmental tax revenues (ETRs) and the environmental context in China. The relationship is estimated through spatial regressions that account for the presence of air pollutants in neighboring countries. The findings suggest that China's FDI in Europe does not contribute to air pollution but rather has a positive impact. The presence of environmental charges filters out non-polluting investments, which has a non-linear relationship with PM2.5 pollution rates. The study also concludes that air pollution is closely linked to the global environmental context, highlighting the positive effects of international agreements in the fight against climate change. Specifically, the study finds a link between China's efforts to address its polluting activities and their impact on European air quality.

How would legal systems affect US and Chinese foreign direct investment in Africa? An exploration of the roles of origins, customary law, and legal integration

ABSTRACT As the first and second largest economies, the United States and China are among leading investors in Africa. Given their differences in economic systems and political institutions, a natural inquiry would be what drives both countries’ continuous investment in this continent. Previous scholars focused on macroeconomic, resources, and political factors. From our perspective, the legal system is deep-rooted and align with the lasing-interest character of FDI, which might unlock a promising space to understand the determinants of FDI in Africa. We proposed that legal systems would impact FDI through property protection, dispute settlement, and cross-border transactions cost reduction, which would take effect through general legal origins, customary law, and legal integration, respectively. Based on our sample containing 43 countries between 2007-19, we find that African’ legal heritage tends to play important roles in affecting U.S. and Chinese investors’ economic engagement with the continent.

The role of institutional quality on the impact of Chinese foreign direct investments and human capital development on macroeconomic performance in the CEMAC zone

This paper investigates the role of institutional quality in terms of governance on the impact of Chinese foreign direct investments and human capital development on the macroeconomic performance of the CEMAC zone between 2003 and 2020. The data were analyzed using descriptive statistics and the Correlated Panels Corrected Standard Errors (PCSEs) Approach. The findings indicated that poor governance performance in the CEMAC zone deteriorates the effects of Chinese foreign direct investments and human capital development on the macroeconomic performance of the CEMAC zone. At the same time, poor governance performance also deteriorates the impact of foreign aid and personal remittances received on the macroeconomic performance of the CEMAC zone. This study strongly recommends measures to improve institutional quality such as increased training on ethical thinking in all forms of education, meritocratic recruitment to the civil service, and auditing of public finances and services.

Critical analysis of the new Chinese foreign investment law in the prism of China-EU CAI and China-US bit negotiations

The Chinese foreign direct investment legal system prior to 2019 evolved constantly, although it failed to satisfactorily address the main issues for foreign direct investments. The new Chinese Foreign Investment Law of 2019 and its Implementing Rule made a landmark improvement to the legal system. This new reform went hand in hand with the China-EU Comprehensive Agreement on Investment (CAI) and China-US BIT and their negotiations. It played a preparative role for the progress made in these two influential investment agreements. It offered unprecedent solutions in areas such as the pre-establishment national treatment, prohibition of forced technology transfer and the enhanced foreign investment protection. Nonetheless, further reforms on SOEs are still needed. The ratification of the China-EU CAI and the reanimation of the China-US BIT, albeit unlikely to happen anytime soon, would still provide long-desired clarity to the dispute resolution mechanism, national security review system and forced technology transfer issue.

Examining the Impact of Country Risks on Chinese FDI in Nigeria

This study investigates the relationship between economic risk, political risk, and Chinese foreign direct investment (FDI) in Nigeria. Using correlation analysis, the study initially identifies a weak positive correlation between economic risk and Chinese FDI, and a weak negative correlation between political risk and Chinese FDI. However, due to the weak nature of these correlations, they are deemed insufficient for decision-making purposes. To determine potential causality, a causality test and regression analysis with optimal lag variables were conducted. The results indicate a positive but statistically insignificant relationship between economic risk and Chinese FDI, and a negative but statistically insignificant relationship between political risk and Chinese FDI. These findings suggest that Chinese FDI in Nigeria is not significantly influenced by economic or political risks, aligning with theories that Chinese investments are driven by strategic objectives such as resource acquisition and geopolitical influence. The study did not find any causal relationship between the political risks and economic risk in Nigeria either. The study contributes to FDI literature by challenging conventional determinants of FDI and provides practical implications for policymakers and businesses in aligning strategies with Chinese investment motivations. Future research should explore additional factors influencing Chinese FDI to offer a more comprehensive understanding of these dynamics.

Hegemon or South-South partner? The ambiguity of Chinese foreign direct investment in Peru

PurposeThe purpose of this paper is to propose a framework for evaluating the relationship between China and Peru, drawing on dependency theory, against the backdrop of China’s explicit policies towards foreign direct investment. It seeks to transcend traditional interpretations of this relationship in the literature that focuses on China as either hegemon or a South–South partner to Latin American countries to highlight a more nuanced relationship.Design/methodology/approachThe paper adopts a case study approach, focusing on China in Peru. The authors examine three areas of traditional, strategic and emerging industries drawing from Chinese national policies, reviewing these against characteristics of dependency: control of production, heterogeneity of actors, transfer of knowledge and delinking.FindingsThe authors find that Chinese foreign direct investment (FDI) in Peru demonstrates mixed motives and collectively operates as an ambiguous player. Chinese firms appear to be willing to work with various actors, but this engagement does not translate into a decolonial development alternative in the absence of a Peruvian political will to delink and Chinese willingness to actively transfer control of production and knowledge.Originality/valueThis paper contributes to existing literature on China in Latin America by evaluating Chinese outward FDI in Peru against China’s strategic aims in terms of a re-evaluation of dependency theory.