Can China's Diplomatic Partnership Strategy Benefit Outward Foreign Direct Investment?

In the context of global integration, whether a diplomatic partnership strategy can promote outward foreign direct investment (OFDI) and how it works are very important issues for China. Based on a dataset featuring China's partnerships collected from the Ministry of Foreign Affairs website, we establish an empirical framework to assess the role of China's diplomatic strategy in its OFDI arising from partnerships since 1993. The results show that the establishment or upgrade of partnerships has had a positive effect on Chinese firms’ decisions on OFDI for at least the short term, especially for firms with higher demand for policy guarantees from the government, such as non‐central firms and non‐Beijing firms. The results also show that the increase in OFDI is concentrated in host countries with higher political risks, such as developing countries, neighboring countries, and Belt and Road countries, which is consistent with China's diplomatic focus. Our research proves that China's diplomatic strategy can assist firms to invest abroad.     

Does Foreign Direct Investment Affect the Growth of Local Firms？ The Case of China＇s Electrical and Electronics Industry

Does foreign direct investment(FDI) into developing countries affect the growth of local firms in host countries? Using a dataset of 38 sectors in China’s electrical and electronics industry,in this paper,we analyze whether FDI has a positive effect on local firms,with technology spillovers,added value and increasing total factor productivity,or a negative, market stealing,effect.Estimating the relationship between growth of local firms and investment of foreign firms,our results show that FDI is likely to have a negative impact on the growth of local firms in sectors with large disparities in technology and less experience in business.Therefore,local firms lacking in technology need to find markets with no competition from foreign firms or determine strategies to compensate technology disparities.     

Dynamic relationship between China's inward and outward foreign direct investments

This paper studies the dynamic relationship of China's inward and outward foreign direct investments (FDI). It first identifies the key determinants of China's outward FDI (OFDI) in 172 host countries during 2003–2009 using a partial stock adjustment model. It finds strong evidence of dynamic adjustment in China's OFDI stock with an agglomeration effect. The dynamic adjustment and agglomeration effects are stronger in “high-tech” countries than in “low-tech” ones but indifferent in host country's resource endowments and income levels. The empirical results suggest that there exists a substantial adjustment cost in China's OFDI and that China's existing OFDI stock can gradually adjust toward its long-term equilibrium level, which is not only greater but also more volatile than the actual stock. Of particular interest is that we find a strong and positive relationship between lagged inward FDI (IFDI) and contemporaneous OFDI, implying that capital outflow from China has been partially induced by the countries which have invested in China.     

Overseas industrial parks and China's outward foreign direct investment

We manually collect data on China's overseas industrial parks from 2007 to 2018, and match it with data on the country’s outward foreign direct investment (OFDI), using the system generalized method of moment (system GMM) approach to test how constructing overseas industrial parks affects China's OFDI. The results indicate that each new overseas industrial park established significantly increases China's OFDI by 2.89%. And the effect only exists in non-high-income host countries, rather than high-income host countries. We also investigate the effects of different types of industrial parks, and find that agricultural, light industrial, high-tech, comprehensive and heavy industrial parks have significant effects, while logistics parks do not. The mechanism analysis suggests that establishing overseas industrial parks increases China’s OFDI by reducing host countries’ economic and financial risks, and improving bilateral political relations. We further find that establishing overseas industrial parks is more likely to promote OFDI in host countries with imperfect infrastructure, impeded capital flows and low levels of unimpeded information. Our findings shed light on how developing countries could enlarge and stabilize OFDI.     

Host countries’ growth opportunities and China's outward FDI

In 2014, China proposed the Belt and Road policy, which has pushed China's outward foreign direct investment (OFDI) to over tens of billions of US dollars. However, existing studies have not reached a consensus about the decisive factors in China's OFDI. To verify whether China's OFDI activities are motivated by profits, this paper applies a measure of country‐specific growth opportunities adopted by Bekaert et al. (2007) to measure the growth opportunities of the target countries for China's OFDI. A multinational panel data model, based on data from 51 countries from 2003 to 2012, is used to explore the relationship between host countries’ growth opportunities and China's OFDI. Overall, the analysis finds that China's OFDI does not follow the host countries’ growth opportunities but exhibits different features toward developed countries and developing countries. For developed countries, China's OFDI follows host countries’ growth opportunities to some extent. In the case of developing countries, China's OFDI does not follow host countries’ growth opportunities. When we consider factors such as a host country's financial development and political stability, improvement in these factors improves the attractiveness of the host country to China's OFDI. It is also found that the 2008 global financial crisis did not have a very significant impact on China's OFDI activities.     

Forty Years Development of China's Outward Foreign Direct Investment: Retrospect and the Challenges Ahead

Outward foreign direct investment (OFDI) has increasingly become an important method for China to integrate into the world economy. This paper comprehensively reviews and analyzes policy development and the changing pattern of China's OFDI over the past 40 years. We divide the development into “restricted” (1978–1999), “relaxed” (2000–2016) and “regulated” (2017 onwards) stages. This paper also reviews literature on the impact of Chinese OFDI on China and host countries. Despite its generally positive effects, large‐scale and unbalanced OFDI activities have alarmed Chinese policymakers. Both developing and developed host countries have expressed their concern over national security and the misbehavior of some Chinese overseas enterprises. Therefore, greater supervision and adjustment from quantity to quality growth is necessary for the future development of China's OFDI.     

Location Determinants of China's Outward Foreign Direct Investment

Compared to inward foreign direct investment, outward foreign direct investment (OFDI) from China is a relatively new phenomenon. However, the volume of China's OFDI increased rapidly from 2004. There has been an increasing amount of literature on the motivations of China's OFDI, but few studies have focused on its location determinants. The present paper aims to fill this gap in the literature by focusing on two important location factors, natural resources and technology, which are the most important determinants of China's OFDI. We use a large panel dataset comprising 132 countries over the period 1991–2009 and the Tobit as well as the Heckman models to establish the relationship between the two location factors and China's OFDI. The empirical results suggest that although China's OFDI has been driven by the country's desire for a secure supply of natural resources and to attain advanced technology from the developed world, China's technology is also a critical attraction for the host developing economies.     

中国OFDI影响因素的实证——与出口的比较分析

与大规模的出口和FDI的吸收相比,中国OFDI还处于较低水平。文章基于企业对外出口与直接投资的模型分析,考察东道国生产的固定成本、工资水平、市场规模以及跨国间贸易成本和企业生产率等多种因素对企业对外直接投资的影响;采用中国与29个国家(地区)2005-2011年的面板数据实证检验了这些因素对中国对外直接投资的影响;结果表明中国企业要实现对外特别是对发达国家较大规模的直接投资,还尚待时日,企业应该在提高企业生产效率,推进生产技术进步、提高产品生产结构等方面做出努力,政府需要在构建与东道国良好的投资环境等方面对企业走出去加以支持。     

Why Do Chinese Private Enterprises Seek Outward Foreign Direct Investment?

China is currently in a period of economic transformation and the reform of the factor market still lags behind that of the product market. This study explores the reasons causing China's private enterprise to expand abroad from the perspective of domestic factor market imperfection. Using data for Chinese listed firms between 2002 and 2020, it examines whether outward foreign direct investment (OFDI) has been undertaken by private enterprises as a response to domestic factor market imperfection. It finds that private enterprises located in regions with greater factor market imperfection have had a greater tendency to engage in OFDI. This effect has been more pronounced among firms with high productivity or high innovation capability, and among medium and small private enterprises.     

Exporting National Champions： China＇s Outward Foreign Direct Investment Finance in Comparative Perspective

We examine the extent to which Chinese development banks have financed the globalization of China＇s ＂national champion ＂firms： specifically, through outward foreign direct investment （OFDI）. We create a database of Chinese fnance for OFDI and compare our results to the existing literature and available data on Japan, Korea and other Asian nations. We estimate the total value of China＇s OFDI finance from 2002 to 2012 at US$14Obn. As a percentage of total OFDI, China＇s lending is roughly three times higher than Japan ＇s, the previous global leader in OFDl finance. We identify two major reasons for China＇s high （31 percent） ratio of OFDl lending to total OFDI. First, China has a greater incentive to give OFDI loans than Japan or Korea ever did because its borrowers are statelowned so it can more easily channel funds to targeted areas. Second, China has a greater capacity to give OFDI loans because it has significantly higher savings and foreign exchange reserves than Japan and Korea.     

China's outward foreign direct investment in the Belt and Road Initiative: What are the motives for Chinese firms to invest?

Because of the potentially large and important effects of the extremely ambitious Belt and Road Initiative (BRI) launched by China in late 2013, considerable attention has been given to the motives for, and repercussions of, the BRI-driven infrastructural projects. Yet, the non-infrastructural outward foreign direct investment (FDI) from China to BRI countries, which varies quite substantially across different sectors and different countries, has not yet received much attention. In contrast to some recent studies showing that the massive initiative has increased China's total FDI outflows to fellow BRI countries, in this paper, based on our sector-level difference-in-differences models, we find that effect to be statistically insignificant. Yet, at the same time, we provide empirical evidence on the sectoral pattern of China's outward FDI before and after 2014 indicating that China's FDI outflows to BRI countries have significantly increased in sectors characterized by overcapacity and contributing to pollution in China, thereby demonstrating that China's BRI-driven outward FDI has been very selective in terms of sectors. We confirm these findings with a variety of robustness checks and show that it is BRI countries with relatively low institutional quality that have been more likely to receive these types of FDI from China. We thus speculate that Chinese firms have been motivated to place FDI investments in BRI countries for the sake of alleviating China's own overcapacity and pollution problems. Our findings lead us to suggest that, although these sectoral patterns are consistent with the different stages of economic development in which China and its fellow BRI-identified countries find themselves, Chinese investors and host country governments should be more concerned with the potential for unwanted side-effects of the FDI investments so that the mutually beneficial effects of the BRI can be sustained into the indefinite future among all countries involved.     

Has China displaced the outward investments of OECD countries?

As China has rapidly emerged as one of the world's largest investors abroad, there has been a hectic debate in the literature on whether its emergence as a major foreign investor may have undermined the importance of western industrialised economies, including those in the Organisation for Economic Cooperation and Development (OECD). This paper aims to investigate whether this is the case. The study uses a panel dataset covering 155 countries, including 33 in the OECD, where China had invested during 2003–09. This is by far the most comprehensive dataset of China's outward foreign direct investment (OFDI). A two-stage least squared (TSLS) regression approach is adopted for our econometric models according to an established augmented gravity model in the literature. The empirical results show clear evidence that China's OFDI displaces that of the OECD countries, but the argument that China's emergence is a ‘new colonialism’ is not supported as OECD countries' OFDI in resource abundant host countries, particularly that in Africa and Latin America, does not appear to have been displaced by China's OFDI.     

How does outward foreign direct investment enhance firm productivity? A heterogeneous empirical analysis from Chinese manufacturing

Using an original linked firm-level panel data from Chinese manufacturing firms over the period 2002–2007, this paper examines how outward foreign direct investment (OFDI) led productivity increase of parent firms (known as the own-firm effect) changes over firm heterogeneity. Conducting propensity score matching (PSM) techniques and differences-in-differences (DID) analysis, we find strong and robust evidence that the first OFDI promotes parent firm's productivity and this effect varies substantially with the firms' characteristics. In particular, firm's absorptive capacity is essential for the own-firm effect, and the absorptive capacity related with the product innovation is more important than that of the process innovation for the own-firm effect. Also, OFDI strategies for obtaining advanced technology and investing in developed countries significantly strengthen the own-firm effect, whereas, government supports have no significant impacts on the own-firm effect.     

Is China's FDI coming at the expense of other countries?

We analyze how China's emergence as a destination for foreign direct investment is affecting the ability of other countries to attract FDI, using an approach that accounts for the endogeneity of China's FDI. Results suggest that China's rapid growth and attractions as a destination for FDI also encourages FDI flows to other Asian countries, as if producers in these economies belong to a common supply chain. There is also evidence of FDI diversion from OECD recipients. We interpret this in terms of FDI motivated by the desire to produce close to the market where the final sale takes place. Firms more inclined to invest in China for this reason are correspondingly less inclined to invest in the OECD. A detailed analysis of Japanese foreign direct investment outflows disaggregated by sector further supports these conclusions. J. Japanese Int. Economies 21 (2) (2007) 153–172.     

Investment facilitation and China's outward foreign direct investment along the belt and road

This study provides a comprehensive and accurate measurement of investment facilitation in 66 countries along the Belt and Road from 2007 to 2018. The expanded gravity model analyzes the impact of host country investment facilitation on China's outward foreign direct investment, and the panel threshold model examines the nonlinear relationship between investment facilitation and outward foreign direct investment. The results indicate significant differences in the level of investment facilitation among countries along the Belt and Road. Overall, spatial distribution characteristics are higher in East Asia, Southeast Asia, and Europe compared to other regions. An increase of 1% in the level of investment facilitation provided by the host country can generally promote a 2.173% increase in China's outward foreign direct investment. Market size (GDP) and technological progress rate (Tec) were used as thresholds for dividing countries along the Belt and Road into four economic regions. Countries in the different economic regions have different levels of sensitivity to investment facilitation and first-level indicators. Currently, Chinese outward foreign direct investment is based on market acquisition but will be based on technological upgrading in the future.     

中国投资是东道国内部冲突的抑制剂还是催化剂

随着国家内部冲突取代了国家间战争成为集体政治暴力的主要形式,对内部冲突中国际维度的关注促使人们思考以国际投资为代表的全球化与跨国企业的影响。从理论上看,国际投资可能会引发冲突,也可能会降低冲突发生的可能性。中国虽然是全球第二大对外直接投资(OFDI)国,但研究中国OFDI对东道国内部冲突影响的实证文献几乎没有。作者基于2004—2016年中国对115个发展中国家的直接投资数据,实证研究了中国OFDI对东道国爆发内部冲突的影响及其作用机制。结果显示,中国对发展中国家的OFDI显著降低了当地爆发内部冲突的概率,而全球第一大OFDI国美国对发展中国家的OFDI对当地爆发内部冲突的抑制作用则不明显。在影响机制上,中国对发展中国家的OFDI显著降低了当地的失业率,有助于增加民众参与武装冲突的机会成本,降低叛乱行为的合法性与成功率,进而减少东道国内部冲突的爆发。以上发现体现出中国投资对东道国内部稳定性的贡献。但这并不意味着可以忽视中国企业“走出去”过程中出现的一些问题。     

OFDI and stock returns: Evidence from manufacturing firms listed on the Chinese A-shares market

Using data for manufacturing firms listed on the Chinese A-shares market over the 2000−16 period, this paper studies the impact of outward foreign direct investment (OFDI) on stock returns using the propensity score matching. It shows that when firms carry out OFDI for the first time, they have to deal with the risks of the overseas market; therefore, the OFDI firms show significantly higher returns. Furthermore, OFDI affects stock returns through the risk channel rather than the diversification channel; the risks OFDI firms are exposed to are mainly demand and political risks. OFDI firms face different risks than non-OFDI firms, thus investors can obtain diversification benefits by purchasing stocks of OFDI firms. In addition, investors can make diversified investments based on the seven dimensions of the nature of firms and OFDI to increase the opportunity to obtain stock returns. For firms, they can conduct on-site inspections before conducting OFDI, becoming familiar with the host country market, laws and regulations. Firms should try to choose politically and economically stable countries to invest in.     

Outward FDI and efficiency in within-firm resource allocation – Evidence from firm-level data of China

With the rapid expansion of outward foreign direct investment (OFDI) in China over the last two decades, OFDI has become an increasingly important way of internationalization for firms. This paper documents how firms’ OFDI and its different patterns may affect their internal resource allocation efficiency by adopting PSM-DID method and using firm-level data of China. Our results show that China's OFDI significantly improves the overall efficiency of resource allocation within enterprises, which has a time lag effect. Furthermore, we find that different patterns of firms’ OFDI display significant heterogeneity in their performances. All results remain robust when we replace key variables with different indexes, change the matching method, recalculate parameter, and change the sample size. The key implication of the paper is that both the value and the pattern of OFDI of Chinese enterprises do have significant influences on its internal resource allocation.     

Impact of Outward Foreign Direct Investment on Chinese Manufacturing Firms' Financialization and Servitization

This study examines the impact of outward foreign direct investment (OFDI) on Chinese manufacturing firms' financialization and servitization. Using a difference-in-differences approach with propensity score matching, we found that OFDI encouraged firms' financial and service activities. The effects of OFDI on financialization were stronger for firms specializing in short-term financial assets, operating in labor and technology-intensive sectors, investing overseas to pursue production, resources and markets there, and investing in non-OECD and Belt and Road Initiative (BRI) countries. Meanwhile, firms investing overseas were more likely to provide services at the sale or postsale stages. Outward foreign direct investment has also boosted the service activities of firms operating in the technology-intensive sector by investing overseas to seek resources and markets, as well as investing in non-OECD and BRI countries. Finally, OFDI partially influenced the extent of financialization and servitization of firms by affecting their profit-making ability.     

The impact of China’s outward foreign direct investment on domestic innovation

This paper explores the reversal technology spillovers of outward foreign direct investment (OFDI) on Chinese firms. Combining a uniquely merged database of Chinese firm-level OFDI and patent data and applying the Propensity-Score-Method-Difference-In-Differences (PSM-DID) methodology, we find a positive causal effect of OFDI on invention patent applications. Some estimations of heterogeneous effects show that OFDI promotes invention patent applications for private enterprises but has mute impact on state-owned and foreign-owned enterprises. With respect to OFDI host countries, OFDI toward developed countries is more effective for promoting innovation activities than developing countries. Three potential transmission channels of OFDI are empirically tested: direct technology purchases, access to high-tech inputs, and international mobility of personnel. Lastly, some policy implications are raised for China’s “Going Out” strategy and the economic development driven by innovation.