Chinese Outward Direct Investment Research Articles

Exchange rate, distribution, and outward direct investment

This paper examines the impact of exchange rate movements on firm outward direct investment (ODI), by taking into account the heterogeneous effects between distribution and production ODI. Overall, homecurrency depreciation tends to increase ODI due, in large part, to the growing emergence of distribution ODI as predicted by a theoretical model. Using rich Chinese firm-level ODI decision data over the period between 2000 and 2008, the intensive empirical search shows strong supports to the model prediction on the complementary relationship between distribution ODI and export. In response to home depreciation, Chinese firms set up more distribution trade affiliates to promote exports. Such results are robust to different econometric methodologies, empirical specifications, and time spans.

Under the same roof? The Green Belt and Road Initiative and firms’ heterogeneous responses

ABSTRACT Launched in 2017 the Green Belt and Road policy acts as an important upgrade to China’s recent core foreign strategy (i.e., the Belt and Road Initiative) and aims to balance the economic development and environmental harmony in countries along the routes. In this paper, we take the implementation of this green policy as a quasi-natural experiment and employ a difference-in-difference method to identify the impact of the policy on Chinese outward direct investment (ODI) firms. We find that the policy has a significant and robust effect on improving the overall performance of ODI firms. Under the same policy roof, however, the seemingly similar impact masks the distinct responses of state-owned and non-state-owned enterprises. Non-state-owned enterprises improve their performance by pursuing green credits and technology upgrades. State-owned enterprises achieve improved performance through better compliance with the green policy and the accompanying government subsidies, in addition to technology upgrades.

Chinese Outward Direct Investment in Africa: From the Perspective of Geopolitics and Cross-cultural Leadership

There has been an increase in economic cooperation between China and Africa. The current study investigated the current status of Chinese Outward Direct Investment (ODI) in Africa and the factors that motivate Chinese companies to invest in Africa. Facing the challenges of investing in Africa, the current study suggested that China needed to enhance its soft power by intensifying academic and social exchange between Africa and China. Additionally, leaders working with Chinese companies investing in Africa can exercise cross-cultural leadership to create a harmonious and friendly relationship with their employees.

Determinants of Chinese Foreign Direct Investment in Central and Eastern Europe

The article deals with China’s outward direct investment (ODI) in Europe. The ODI has been on the rise and is unique in the sense that its development is much faster than in any other developing country. We investigate the determinants of Chinese ODI in ten countries of Central and Eastern Europe in the time span of 2005 and 2018. Using panel data analysis, the regression model incorporates both traditional macroeconomic variables as well as selected institutional variables, trying to test which of those work best at explaining the Chinese investment activity in the countries of interest. The quality of the institutional framework is represented by EBRD indicators, which seem to be more suitable for transition economies. Findings generally suggest that Chinese multinational enterprises do not access Central and Eastern European countries primarily for market-seeking reasons. However, the fact of being a member of the EU helps Chinese ODI since the membership is used as a sort of “backdoor” to the large European markets. Still, Chinese ODI is less likely associated with a sound institutional environment of a host country, as the opposite appears to be true. These findings, therefore, support the hypothesis that access to the single EU market and R&D spending are more important determinants of the Chinese ODI than almost any other factors. Implications for Central European audience: The article explores the main drivers of Chinese foreign direct investment in the CEE region while it employs the most relevant theoretical framework, including several recently developed theories. The quantitative analysis then thoroughly explores the weight and sign of selected drivers using recent data and questions some of the conventionally accepted surmises about motivations of Chinese investment activity in the CEE region. This is an important topic given the ongoing debates about China’s influence in the region as well as about the intensity and general value added of its investment activity.

Impact from Productivity and State-ownership of Chinese Agricultural Firms on ODI Decisions

Chinese agricultural outward direct investment has grown rapidly over the last decades. Neo-classical foreign direct investment theories can explain the reasons in motivation perspective reasons for the rapid growth, but cannot explain what types of agricultural firms would be most likely to undertake outward direct investment to together make the rapid growth. We use a Chinese agricultural firm level dataset matched from Chinese industrial enterprises database and Chinese outward direct investment enterprises database to empirically examine the relationship between firm heterogeneity and outward direct investment decisions. We find the estimation results support the Helpman-Melitz-Yeaple hypothesis that as the first firm heterogeneity the total factor productivity has a positive influence on the probability that a firm will undertake outward direct investment, which is in accordance with the past related research especially the recent theoretical research progress of international direct investment. In contrast, we find that as the second firm heterogeneity the state ownership has a negative influence on the probability that a firm will undertake outward direct investment, which is not in accordance with the past research on Chinese overall outward direct investment and could be explained by the domestic support obligations of the state-owned agricultural firms in China. Furthermore, we implement robust estimation and the results shows a significant robustness. Our research shows that firm heterogeneity dose matter and it is important to take this into account in analyzing Chinese agricultural firms' outward direct investment decisions.

Determinants of Chinese Direct Investment in Central-East Europe under the Belt and Road Initiative Framework: A Panel Data Analysis

The Chinese outward direct investment has experienced a dramatic growth worldwide under the Belt and Road Initiative (BRI) framework in the past few years, and naturally this growing Chinese capital also fosters the cooperation between Central East Europe (CEE) region and China. This research examines diversity of determinants holding impact on Chinese FDI flows from 2009~2018 in CEE region with implementation of panel data analysis, and our result partially explains what cause the heterogeneity concerning amount and density of Chinese capital in CEE countries. Our findings suggest us that generally countries with superior capacity in manufacturing sector and better performance in exportation are preferable capital destinations since Chinese investment is dominated by purposes like EU market access, relieving industrial overcapacity, industry upgrading, and a more effective integration of global industry chain. It is also illustrated in our findings that, from a macro perspective, it is intrinsic and inherent factors of individual economies and political concerns, rather than short-term financial factors, like financial market volatility, that could significantly determine the Chinese capital outflows in this region.

Investment Experience, Bilateral Investment Treaty and China’s ODI: A New Angle to Explain Risk Preference

This paper investigates the role of investment experience in Chinese outward direct investment based on deal-level data from FDI Intelligence and Dealogic data. We use gravity model to test the Chinese firm’s risk attitude and how this attitude is adjusted by firm’s previous investment experience and Bilateral Investment Treaty (BIT). The results show that, first, investment experience has a stimulating effect on s (next) investment scale. This stimulating effect is positively correlated with the concreteness of the investment experience; Second, China’s ODI still has an appetite. Firms tend to investing in countries of high corruption risk, government efficiency risk, political stability risk, regulation quality risk and rule of law risk, but not voice and accountability risk; Third, previous investment experience has a moderating effect on risk preference. That is to say, firms with richer experience tend to be more risk averse; Finally, the existence of investing partner does have a positive moderating effect on firms’ risk preference making firms more risk averse, while the BIT has a stronger but negative moderating effect on risk preference, making firms more aggressive, especially for resource industry. It is inferred that BIT provides a solid safety net for Chinese resource companies since they’re mostly state-owned and have keen relationship with Chinese government.

Political Risk Distribution of Chinese Outward Direct Investment — an Empirical Study from 2006 to 2017

The purpose of this paper is driven by the author’s desire to contribute to the ongoing debate as to whether the internationalisation of Chinese Transnational corporations (TNCs) in foreign direct investment is due to conventional logic. The author selected 15 indirect variables from the data of the ‘Coordination and Resource Group’ (CRG) and the ‘International Heritage Foundation’ and applied the principal component analysis (PCA) method to develop a new Political Risk Index (PRI). It could assess the multiple dimensions of political risks for 139 countries. Using this index as a fundamental criterion, the author investigated the changes in Chinese Outward FDI in terms of directions and volumes of investments, annual investment flows and their distribution by sectors of the economy from 2006 to 2017. As a result of the study, the author found that the vast majority of Chinese Outward FDI during this period was concentrated in countries with medium and low levels of political risks.

Exchange rate uncertainty and the timing of Chinese Outward Direct Investment

This paper investigates the timing of Chinese ODI under exchange rate uncertainty by employing the Cox proportional hazards model. Using matched data this paper finds both exchange rate level and volatility are the important determinants, and RMB depreciation and greater volatility will deter ODI. Such adverse effect is found more striking for non-SOEs, firms in the eastern region, and non-exporting firms. With China’s recent exchange rate formation mechanism reform, the impact of exchange rate uncertainty is expected to be stronger. These findings have important implications for China’s exchange rate regime reform and its “Going Global” strategy.

Effects of China's OFDI on Exports: A Context Analysis with the “21st-Century Maritime Silk Road” Regions

Tao, C.; Liu, S.; Tian, Y.; Gu X. and Cheng, B., 2019. Effects of China's OFDI on Exports: A Context Analysis with the “21st-Century Maritime Silk Road” Regions. In: Gong, D.; Zhu, H. and Liu, R. (eds.), Selected Topics in Coastal Research: Engineering, Industry, Economy, and Sustainable Development. Journal of Coastal Research, Special Issue No. 94, pp. 903–907. Coconut Creek (Florida), ISSN 0749-0208.With the implementation of the Belt and Road initiative, China will invest more in countries in the “21st-Century Maritime Silk Road” Regions. Using the data of the 63 countries along “the Silk Road Economic Belt and the 21st-Century Maritime Silk Road” from 2004 to 2015, this paper empirically analyzes the effect of Chinese outward direct investment on export in “the Silk Road Economic Belt and the 21st-Century Maritime Silk Road” area. The results reveal that the relationship between Chinese OFDI and export towards the host country is changeable and demonstrates an inverted U shape. As a result, OFDI can make full use of the advantages of each country, realize optimal allocation of resources in the countries along “the Silk Road Economic Belt and the 21st-Century Maritime Silk Road”, and enable the transfer of China's spare capacity. And it should be adopted as China's long-term initiative.

Macro Mechanisms in the Promotion of Chinese Outward Direct Foreign Investment

From the study it is concluded that after implementation of the scheme, 93% respondents stated that they have been provided irrigation facilities for farming to enhance agriculture productivity. Around 91.8% respondents admitted that due to the provision of irrigation facilities for farming, the production of commercial crops (89.5% respondents) have increased and 91.8% respondents stated that agriculture lands have been covered under cultivation.

The determainants of the recipient country choice for foreign direct investment by Chinese multinationals

The dynamics of Chinese outward direct foreign investments has been analyzed taking into account that underdeveloped financial market and weak institutions in China have a widespread political rent. The research has proven that in the absence of political ties, manufacturing enterprises that could enter the foreign markets cannot find the necessary funding to cover additional initial costs and lose the opportunity to increase their profits through international economic activity. On the other hand, enterprises with strong political ties easily compensate for their lower efficiency and invest in foreign countries. Finally, foreign affiliates managed by less efficient companies suffer losses rather than make a profit. This situation with regard to Chinese inefficient subsidiaries abroad is not uncommon and is described in many studies, which have been analyzed in the article. The empirical study has been carried out on the basis of a unique set of data for the analysis of factors that influence the choice of country for FDI by Chinese MNEs with the use of both country-level and firm-level characteristics. The firm-level characteristics include: the coefficient of overall factor productivity, the political ties, the average level of education directors, the intensity of the use of skilled labor, and the location of the parent MNE via a province dummy and an industry dummy. The country- level characteristics include: gross domestic product, trade restrictions, transportation costs, natural resources and three indicators of the existence of cultural networks. The results prove that the marginal political ties are higher for countries with higher entry costs, which is consistent with the hypothesis that political relations facilitate the obtaining of external financing under conditions of liquidity constraints and high entry costs. The analysis showed the existence of strong motives for Chinese MNEs to enter the country well-stocked with capital, skilled labor and natural resources. Chinese MNEs are also more likely to invest in countries with strong political ties with China, measured through humanitarian aid projects offered by China to potential recipient countries.

Chinese outwards mercantilism – The art and practice of bundling

The Global Financial Crisis (GFC) brought to the fore the limits of the Chinese export led-growth strategy and the need for Chinese rebalancing of its international business approaches. Our paper takes stock of what may be the new chapter of Chinese outward-mercantilism, which aims at securing a higher rate of returns on its net foreign asset position, leveraging its success in manufacturing exports, natural resource imports and RMB internationalization. Using micro-level project data and macroeconomic covariates, we find positive association of Chinese trade and financial flows with China’s outward direct investment (ODI). The relationship is stronger for ODI originated from the Chinese state-owned enterprises, and strengthened by the provision of RMB swap-line agreements with China’s trading partners. The evidences support the conjecture that Chinese ODI is bundled to trade and financial linkages with its investment and trading partners.

Internationalization Strategies, Entry Modes and Cultural Dimensions of Chinese Way of Doing Business in Europe

Abstract This paper presents the process of Chinese outward direct investment in Europe. A remarkable feature of the Chinese cross-border business expansion is the essential role of government in the internationalization of Chinese MNCs which was supported by official policy instruments, including the famous “go global” strategy that encouraged thousands of Chinese firms to invest abroad. It argues that the driving motive of Chinese firms to go abroad aimed at acquiring new skills, advanced technology, brands and supply chains that would enhance their competitive advantage in international as well as domestic markets. To this end, the Chinese investment in Europe has generally targeted few but major economies, namely Germany, UK and France. Merger and acquisitions has been the leading market entry mode resulting in huge takeovers characterizing Chinese investment in Europe. It is also apparent that the internationalization process of Chinese business companies did not follow the traditional Uppsala model as psychic distance and experiential knowledge didn’t play a role. Nevertheless, it is evident that the path-dependency of Chinese expatriates in European countries has made it difficult to learn and adapt to the local work environment that exhibits diverging and contrasting cultural values. This huge cross-cultural gap, often portrayed in the literature as “culture conflict”, constitutes the biggest challenge that Chinese companies face, in their international operations in general, and could undermine their effectiveness in doing business in European countries in particular.

The Limits of Guanxi for Chinese Nationals Doing Business Abroad: Empirical Investigation into Chinese Companies in Germany

AbstractIn the last ten years, Chinese outward direct investment (CODI) has undergone dramatic development. It has become increasingly important on the global stage. This paper attempts to integrate the guanxi concept into the Uppsala internationalisation process model to explain CODI motivation, location choice and knowledge acquisition channels. It reveals that Chinese investment in Germany is mainly driven by the desire to explore markets and to search for strategic resources. It favours location rich in network resources. Guanxi acts as an important channel of knowledge acquisition, but it is not as important as contractual linkage because of the limited professional and industry‐related knowledge in the local Chinese community. Chinese capitalism has been shaped into a hybrid form that incorporates both modern corporate management and traditional guanxi utilisation. Research which ignores or overemphasises the role of guanxi could lead to an incorrect understanding.

From world factory to world investor: the new way of China integrating into the world

ABSTRACTThis paper argues that outward direct investment (ODI) is replacing international trade as the new way China integrates into the world. Based on two complementary datasets, we document the pattern of Chinese ODI. We argue that the rapid growth of China’s ODI is the result of strong economic development, increasing domestic constraints, and supportive government policies. Compared with trade integration, investment integration involves China more deeply in global business. As a new global investor, China’s ODI in the future is full of opportunities, risks, and challenges. The Chinese government should improve bureaucracy coordination and participate more in designing and maintaining international rules to protect ODI interests.

Chinese outward direct investments in Europe and the control of the global value chain

This article will adopt a long-term perspective on the possible evolutions of the respective role of China and Europe in the global division of labour and in international trade and how it affects the flow of Chinese outward direct investments in Europe. The Chinese leadership has been pursuing an active industrial policy to enable its national champions to move up the value chain and challenge the European incumbents. In that context, Chinese authorities have been fostering strategic asset-seeking outward direct investments by Chinese firms in the European Union to capture technology and management know-how by taking over European enterprises weakened by the crisis. This new challenge affects very differently the various European Union member states according to their level of technological development and their role in the regional division of labour between the economic centre and the periphery of the European Union. This analysis will explain the evolution and distribution of Chinese outward direct investments in Europe and provide elements for a prospective analysis of this phenomenon.

The exceptional performance of Chinese outward direct investment firms

ABSTRACTThis paper finds that Chinese manufacturing firms that engage in outward foreign direct investment (ODI) have better economic performance than non-ODI manufacturing firms. Overall, ODI firms are more productive and have higher profitability than non-ODI firms. The sector analysis shows that the exceptional performance is significant for labor-intensive industries. Finally, the ODI activity can raise the productivity of other firms in an industry. The larger the ODI within an industry, the higher the productivity of all firms in that industry. The paper suggests that domestic firms set up their firm’s global strategy and reallocate the firm’s resources according to the changing investment environment, taking advantages of profit opportunities outside of domestic markets and invest abroad to get new markets and new technology.

Does Chinese Outward Direct Investment (ODI) to Africa stimulate The Sino-African Trade Co-operation?

The Chinese Outward Direct Investment has expanded exponentially over the past years affecting the intensity of trade ties and the presence of China's contracted projects with high level of significance in volume and diversity across the African Continent. The purpose of this study is to assess and examine 24 Countries in Sub-Sahara Africa during the period 2003 to 2013(10 years) to investigate whether or not the Chinese Outward Direct Investment to Africa stimulate the Sino-African Trade cooperation with a clarity showing the rigidity which both parties have to balance to enforce the win-win benefit. For data analyses, the study adopts a panel data to analyze Chinese ODI exports to Africa, and a time series data to investigate the effect of its imports from Africa. The study reveals that Chinese Outward Direct Investment to Africa has contributed significantly and paying off as it has plays a vital role in increasing Chinese exports to Africa as well as imports from Africa especially in the oil and other raw materials imports and manufactured goods. The research found also that per capita income and annual percentage growth of domestic product of China have a positive effect on its import. Macroeconomic Policy makers and regulators would use the research finding recommendations as a proxy for sound Policy implementation that strengthen and enhance China's Outward Direct Investment and trade cooperation with SSA for a win-win benefit to attain a sustainable growth and development.

Motivations of Chinese outward direct investment: The sector perspective

From the sector perspective of mining, manufacturing and services, the motivations of Chinese outward direct investment (further ODI) are discussed during the period from 2001 to 2012, acknowledging different host countries and firms’ ownership structures. The estimated results justify that the location determinants of Chinese ODI differ between sectors, which implies the motivation behind such investment may vary. As expected, resource-seeking is the most important motivation for Chinese ODI in mining sector; market- and strategic asset-seeking motivations are possessed by both manufacturing and services sectors. The probability of the host country receiving Chinese FDI, as well as high FDI openness and frequent bilateral trade with China is favorable for doing business. Results also suggest that the factors increasing the probability of a country being chosen as a location for Chinese ODI vary between different host countries, as do different ownership structures.