Chinese Outward Foreign Direct Investment Research Articles

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

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.

Environmental impact of infrastructure-led Chinese outward FDI, tourism development and technology innovation: a regional country analysis

Investment and construction of energy and transport-related infrastructure are closely linked to the achievement of sustainable development goals. China’s infrastructure-led foreign investment, technical integration, and tourism with Belt and Road Initiative (BRI) countries have maintained exponential growth. This growth certainly has an impact on economic development mode and environmental sustainability. Therefore, this study examines the impact of infrastructure-led Chinese outward foreign direct investment, tourism development, and technology innovation on carbon emissions across the selected BRI node countries and respective regions. This study employs cross-sectional autoregressive distributive lag model to deal with parameters and cross-sectional heterogeneity. The results exhibit that foreign direct investment and technology innovation reduces carbon emissions in the long run, while tourism development and its interaction with foreign direct investment led to higher emissions in the overall BRI sample. In contrast, the regional estimates show significant variations in the magnitude and direction of the relationship, where foreign direct investment produces an emissions-increasing effect in South Asian and MENA countries. Moreover, the results support the validity of the Environmental Kuznets Curve hypothesis in overall and regional samples. These results are also endorsed by common correlated effects means group estimator and imply relevant policies.

The BRICS Countries’ Bilateral Economic Relations, 2009 to 2019: Between Rhetoric and Reality

After Brazil, Russia, India, and China (BRIC) started meeting in the BRIC countries format, and since 2011 with South Africa in the BRICS format, these countries’ leaders made several pledges for strengthening intra-BRICS economic cooperation. This article examines the degree this is reflected in the increase of Chinese Outward Foreign Direct Investment (COFDI) in the other four BRICS countries, the value of Chinese construction contracts, and bilateral trade between China and Brazil, India, Russia South Africa in 2009 to 2019. Focusing on these aspects contributes to the ongoing debate about the institutionalization of the BRICS political grouping. This article demonstrates that, thus far, despite the various pledges, the intensification of intra-BRICS economic cooperation is very limited. With some exemptions due to mega investment deals, COFDI in the other BRICS partners is still reasonably modest and shows no clear trend of increase over time in both absolute and relative figures. There is no significant increase in total trade, and various imbalances and asymmetries remain. Thus, the reality does not mirror the BRICS rhetoric on the intensification of economic cooperation.

Buying-up Europe No More? How the European Union has Responded to the Challenges of Chinese Foreign Direct Investment

towards Chinese outward foreign direct investment (OFDI) has evolved over the past decade. I contend that the EU was quite receptive to Chinese OFDI at the beginning of the decade, due to both ideological leanings and the economic context of a post-crisis Europe. I then illustrate how the EU slowly adopted a more guarded and critical approach towards Chinese OFDI. This paper will focus specifically on four key issues surrounding Chinese OFDI policy: national security, technology transfers and IP theft, state support for Chinese firms, and market access, ultimately arguing that bilateral investment treaty (BIT) negotiations and the new EU investment screening mechanism are the main policy levers being used to address these concerns. For the sake of this paper, I will use the OECD’s definition of OFDI.

Does institutional distance affect the risk preference of enterprises' OFDI: Evidence from China

The paper made an empirical analysis on how institutional distance affects the risk preference of enterprises' OFDI by using the sample of A‐share listed companies in China from 2014 to 2018 and further explored how institutional distance affected enterprises' preference for low‐risk investment in OFDI in “the belt and road” and other countries through fuzzy set qualitative comparative analysis. The paper shows that the institutional distance is negatively correlated with the risk preference of enterprises' OFDI. Six factors, such as voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption, form diversified configuration forms and influence paths that affect the risk preference of Chinese enterprises' OFDI. The specific performance is that “high voice and accountability, low government efficiency and low corruption control” will drive enterprises' low‐risk investment preference in “the belt and road” countries; And “low government efficiency, low regulatory quality and high legal level” will drive enterprises' low‐risk investment preference in other countries.

Economic Policy Uncertainty, Bilateral Investment Treaties, and Chinese Outward Foreign Direct Investment

This paper examines the effect of bilateral investment treaties (BITs) in promoting Chinese outward foreign direct investment (COFDI) in the presence of rising economic policy uncertainty in China's partner countries. We postulate that the signing of BITs should help stimulate COFDI because the treaties send a credible signal to foreign investors about the host country's intent to protect Chinese investment, and make it more difficult for the host country to violate its treaty obligations. BITs that contain rigorous investment protection and liberalization provisions, in particular, should be more likely to encourage COFDI as they directly influence Chinese investors' expectations about the stability, predictability, and security of the host market. However, while BITs generally promote COFDI, host country economic policy uncertainty may also limit their effectiveness. This is because uncertainty tends to undermine investor confidence, trigger capital flows from high- to low-risk countries, and dampen commercial activities. Poisson pseudo-maximum likelihood (PPML) estimation models of the determinants of COFDI to 188 countries between 2003 and 2017 lend substantial support to our conjectures.

Does technology gap increase FDI spillovers on productivity growth? Evidence from Chinese outward FDI in Belt and Road host countries

The Belt and Road Initiative (BRI) is driving the rapid growth of China's outward foreign direct investment (OFDI) across the BRI region. Many BRI host countries, which are developing or underdeveloped in nature, are embracing higher Chinese OFDI in the hope of improving their productivity, trade, and infrastructure. Unlike traditional models, which assumes that foreign investment stimulates productivity growth by generating technological diffusion from the developed world to the developing economies, it is argued that whether China, as a developing country, has sufficient technological capabilities to generate technological spillovers for developing BRI host countries, and what is the role of technology gap to catch up these spillovers. In doing so, this study examines the impact of Chinese OFDI-induced technology spillovers on total factor productivity growth conditional on technology gap between China and BRI host countries. This study employs System Generalized Method of Moments and Feasible Generalized Least Squares estimators and provides two key findings. First, Chinese OFDI increases the productivity growth of BRI host countries; however, the productivity spillovers are lower in magnitude across all specifications. Second, the productivity spillovers from Chinese OFDI decrease with the increase in technology gap, and after a certain threshold, these spillovers become less pronounced.

Chinese Power and the State-Owned Enterprise

AbstractChina has become a leading source of outward foreign direct investment (FDI), and the Chinese state exercises a unique degree of influence over its firms. We explore the patterns of political influence over FDI using a comprehensive firm-level data set on Chinese outward FDI from 2000 to 2013. Using six country-level measures of affinity for China, we find that state-owned and globally diversified firms appear to conform most closely to official guidance. Official investment directives and state visits link investments to state policies; Taiwan recognition and Dalai Lama meetings anchor our political interpretations; and UN General Assembly voting and temporary UN Security Council membership suggest that this intervention may be systematic. The results are robust to country, year, and sector fixed effects, and most do not hold for private or small firms. The results suggest that China uses FDI by prominent state-owned enterprises as an instrument to promote its foreign policy.

China’s Infrastructure Investment to the Belt and Road: The Case of the China-Indochina Peninsula Economic Corridor

Inspired by China’s historical role as a central hub in the Silk Road, the Chinese government officially launched the Belt and Road Initiative (BRI) in 2013. The BRI aims at deepening regional economic cooperation on a transcontinental scale and investing in infrastructure that promotes regional connectivity over land and sea. In recent years, China’s outward foreign direct investment (OFDI) has increased tremendously. Empirical evidence suggests that Chinese OFDI is about 40 percent higher in BRI countries than non-BRI countries. Under the BRI framework, China is currently a global leader in the construction of transportation infrastructure. In this paper, we examine the case of the China-Indochina Peninsula Economic Corridor (CIPEC) and investigate the macroeconomic implication of the BRI by conducting empirical study on Chinese OFDI to the CIPEC, analyzing China’s infrastructure investment, and conducting case studies of BRI infrastructure projects in the region. Our findings draw implication for policymakers in BRI nations who intend to attract Chinese infrastructure investment to improve regional connectivity. The lessons learned from these BRI projects highlight the importance of institutional relationship, domestic politics, political stability, and policy uncertainty, which in turn shed light on future infrastructure projects between China and host countries under the BRI framework.

Do institutional risk preferences exist in Chinese direct investments in ASEAN countries? A case study of Chinese-funded enterprises in Laos

PurposeInstitutional factors play an important and complex role in Chinese outward foreign direct investment (OFDI) location choices that do not seem to be influenced by a host country’s high political risks. Moreover, the location choice for OFDI is key to corporate strategic decision-making on internationalization. Therefore, this study aims to examine the direct investments of Chinese multinational enterprises (MNEs) in Laos.Design/methodology/approachCombining the purposive sampling strategy and snowball sampling method, the authors interviewed nine market- and resource-seeking Chinese enterprises in Laos. Drawing from the mainstream eclectic paradigm and the theory of new institutional economics, the authors analyzed two key variables – enterprise investment motivation and enterprise heterogeneity.FindingsChinese MNEs are not insensitive to the regressive institutional quality of host countries; the relationship effect and institutional distance are the location decision pathways along with which institutional factors influence Chinese multinationals’ investments in Laos; political stability is necessary for Chinese-funded enterprises to invest in Laos and the degree of corruption is an overestimated institutional preference factor.Originality/valueThe relationship effect is introduced into the analysis framework as an intermediate variable that influences the decision of MNEs to invest in countries with underdeveloped institutions. It verifies the significant roles of bilateral political relations and network relations in the OFDI location decisions of state-owned and private enterprises, respectively.

One country, many industries: Heterogeneity of Chinese OFDI motivations at meso level

Research on the stimulants for Chinese Foreign Direct Investment (FDI) is extensive. However most analysis incorporates theoretical models based on the Institution-Based View or, to a lesser extent, the Resource-Based View (RBV). These highlight the importance of the macro (country) and micro (firm) level, while largely ignoring the meso (industry) level. In addition, although investments are known to have several different motivations, stimulated by quite different factors, analysis tends to focus on aggregate FDI flows. We contribute to the literature by proposing an ‘industry-based view’ of FDI which takes account of heterogeneity across industries and FDI motivation. We apply this framework to Chinese OFDI in Europe, differentiating both in terms of investment motivations and sectoral characteristics at (meso) industry level and at (micro) firm level, in home and host countries. Using logistic and multinomial logistic models, our analysis confirms that different types of Chinese FDI (in terms of motivation) are stimulated by different industry-level characteristics in both home and host countries.

The impact of Chinese Outward Foreign Direct Investment on the comparative advantage of the Belt and Road countries

The present study investigates the impact of Chinese outward foreign direct investment (OFDI) on the comparative advantage (CA) of the Belt and Road countries (BRCs). This study uses the national-level panel data of Chinese OFDI flowing into 62 BRCs and disaggregated sectoral data from BRCs categorised by factor intensity from 2003 to 2017 and applies dynamic system generalised method-of-moments (GMM) estimators with instrument variables. The findings suggest that Chinese OFDI has a strong positive effect on the CA of BRCs in natural resource-intensive industries, a relatively weak positive effect on the CA of BRCs in labour-intensive textile, garment and footwear sectors, and a negative effect on the CA of BRCs in other labour-intensive sectors. Additionally, Chinese OFDI has a negative effect on the CA of BRCs in capital- and technology-intensive sectors, but the impact is positive in high-income BRCs. In contrast, non-Chinese OFDI shows a negative effect on the CA of BRCs in the natural resource industry, while non-Chinese OFDI significantly promotes labour-intensive industry and capital technology-intensive industry. Under the Belt and Road Initiative, BRCs are required to facilitate or prioritize Chinese investment in sectors complying with their own development strategies and resource endowments.

Estimating the ex‐ante and the ex‐post effects of Chinese outward FDI

AbstractThis study investigates the relationship between outward Foreign Direct Investment (FDI) and the performance of Chinese enterprises. Using firm‐level panel data over the period 2008–2014, we introduce a taxonomy of outward FDI that accounts for the decision to invest abroad and the location of foreign affiliates. Through different specifications, we show systematic differences in performance between FDI starters and non‐starters two years before and two years after the first investment by the starters. This fact points to the existence of strong ex‐ante and ex‐post effects of Chinese outward FDI. On one hand, we provide evidence – so far not present in the literature – that the best performing Chinese firms self‐select into outward FDI. On the other hand, controlling for endogeneity through propensity score matching (PSM) techniques, we detect significant learning effects from outward FDI to firm‐level performance. Interestingly, these effects are heterogeneous with respect to destination, with deeper learning for Chinese enterprises investing in Asia.

Carbon dioxide emissions and Chinese OFDI: From the perspective of carbon neutrality targets and environmental management of home country

Studies investigating the relationship between foreign direct investment (FDI) and the environment have focused predominantly on the effects of FDI on host country environments with less attention paid to the impact on home countries. This study turns its attention to the effects of outward foreign direct investment (OFDI) on a home country's carbon dioxide emissions. We use three paths through which OFDI can affect the carbon dioxide emissions of a home country, including economic scale, technology level, and industry composition effects. Using a simultaneous equation model and panel data of 30 provinces of China for the period of 2003–2017, this study finds that OFDI is positively related to the carbon dioxide emissions of the home country, though the effects of emissions have weakened dynamically due the technology developments brought about by OFDI. More specifically, we find that both ‘pollution haven’ and ‘pollution halo’ effects existing in three different paths. The paths of industry composition and technology level show negative effects on carbon dioxide emissions, whilst the path of economic scale is positive. OFDI is also found to be negatively related to the carbon intensity of the home country.

Institutional Risk Preference and Asymmetric Role of Institutional Distance: An Examination on the OFDI of China

With the implementation of the “Going Out” policy and the “Belt and Road” initiative, Chinese outward foreign direct investment (OFDI) in the countries along the “Belt and Road” increased substantially in the past decade. This paper analyzes the impact of institutional distance on Chinese OFDI and whether Chinese OFDI exhibits institutional risk preferences, using data on Chinese OFDI in 41 countries along the “Belt and Road” for the period from 2003 to 2018. We find that political institutional distance and economic institutional distance are both positively related to China’s OFDI scale, while cultural distance has a negative impact on the investment scale. We also find that institutional distance has an asymmetric effect on China’s OFDI. In particular, the worse the host country’s political environment, the larger the Chinese OFDI, indicating that Chinese OFDI exhibits the political institutional risk preference. On the other hand, Chinese multinational enterprises are more willing to invest in host countries with high economic freedom. Culture institution environment of the host country has a positive but insignificant impact on the Chinese OFDI scale, indicating that Chinese OFDI shows the characteristics of cultural distance proximity.

Knowledge-seeking and firm international performance: Evidence from Chinese multinational enterprises

This study focuses on whether the outward foreign direct investment (OFDI) of Chinese multinational enterprises (MEs) can improve firm international performance by seeking and transferring knowledge from developed markets (DMs). To control for the endogeneity and self-selection problem when deciding whether overseas investment should be accepted, propensity score matching (PSM) and difference-in-difference (DID) methods are combined to test the hypothesis. Samples of Chinese A-share listed firms over the period 2003–2018 are used to test the effects of knowledge seeking on firms' international performance. The empirical results indicate that Chinese EMs' OFDI in DMs can indeed improve their competitiveness in the world market through a combination of reverse spillovers and knowledge transfer.

How does geopolitical uncertainty affect Chinese overseas investment in the energy sector? Evidence from the South China Sea Dispute

Based on Chinese outward foreign direct investment data, this study examines the impact of the South China Sea Dispute on China's overseas investments in oil & gas-related sectors. The South China Sea Dispute alarms a potential threat to China's energy supply. By applying a difference-in-difference estimation, we find that the South China Sea Dispute brings about an increase in the frequency of China's oil & gas-related investments to low-risk countries. The findings are robust under several specification tests. It indicates that under geopolitical uncertainty environment, energy-importers will reallocate energy investment in order to avoid the potential disruption of energy supply.

How does intellectual property protection in the host country affect outward foreign direct investment?

This paper empirically analyses the impact of a host country’s intellectual property (IP) protection on Chinese outward foreign direct investment (OFDI), employing panel data of 109 host countries’ FDI stocks and IP protection levels. Based on the regression results, it is concluded that the host country’s IP protection has a significant impact on Chinese OFDI. By including an interaction term into the regression, it can be seen that a host country’s trade openness enhances the influence of intellectual property protection on OFDI. Using subsample regressions, it was found that the positive effect of the protection of IP rights by the host country on China’s OFDI is stronger in the countries along China’s ‘Belt and Road’ initiative. For a subsample of countries with a lower degree of IP protection than China, the positive effect of IP protection is weaker than in ones with a higher IP protection level. The results obtained through a threshold regression, show that host countries can be divided into three categories, based on gross domestic product per capita, namely low, medium and high development levels. The higher the level of economic development of the host country, the greater the impact of IP protection on China’s OFDI. The host countries are also categorised into low-, medium- and high-level IP protection levels. As the level of a host country’s IP protection improves, it promotes OFDI from China.

Outward FDI and stock price crash risk---Evidence from China

This paper examines the impact of Chinese outward foreign direct investment (OFDI) on stock price crash risk, based on 6273 OFDI events completed by 1541 A-share listed companies in 128 host countries from 2000 to 2018. Using a propensity matching score (PSM) method and difference in differences (DID) estimation, we find that OFDI reduces the stock price crash risk of the investing company, and the effect is more pronounced in host countries that own better institutional environments. The mechanism analyses find that the impact of OFDI on stock price crash risk is more significant when the companies invest in areas where business is more convenient, the protection of minority investors is greater, and information disclosure is more complete.

Nexus between green logistic operations and triple bottom line: evidence from infrastructure-led Chinese outward foreign direct investment in Belt and Road host countries.

The Belt and Road initiative (BRI) mainly relies on the traditional and underdeveloped logistical trade routes including the terrestrial and oceanic Silk Road. The poor logistic infrastructure across the BRI region not only restricts trade potential and economic progress but also creates several social and environmental challenges. Therefore, this study investigates the relationship between green logistic operations, economic, environmental, and social indicators of countries along with the BRI. This study provides three key findings using feasible generalized least squares (FGLS) and system generalized method of moments (Sys-GMM) estimation techniques. First, Chinese outward foreign direct investment significantly improves the quality and quantity of green logistic operations in terms of transport infrastructure, customs services, cost, time, tracking, and reliability of international shipments. Second, a higher quality of transport-related infrastructure, customs clearance efficiency, and competency of logistics services significantly mitigate the level of carbon emissions due to the energy conservation in the supply chain process. Moreover, the application of renewable energy resources significantly improves the quality of logistics operations. These results indicate that higher quality of green logistic operations provides efficient infrastructure and greater information sharing among supply chain partners that increase trade volume, growth opportunities, and environmental sustainability. Third, a higher institutional quality helps to mitigate social concerns through improvement in the efficiency of logistic operations. Although BRI regional estimates show significant variations, the overall results imply that BRI participating countries should integrate with ongoing investment projects to promote the quality and quantity of green logistic infrastructure and ensuring environmental stewardship.