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How home and host country industrial policies affect investment location choice? The case of Chinese investments in the EU solar and wind industries

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Abstract

The paper explores the influences played by asymmetries between European and Chinese incentive policies in renewable energy sources (RES) on location choice of Chinese investments in the EU. In the last decade, while EU countries relied on demand-oriented policies in the RES, China has been directly promoting supply-side interventions to support the domestic production of components. We advance the literature on determinants of Chinese investments abroad, by including relevant variables related to industrial selective policies of RES in home and host countries. By using a firm-level database from the Ministry of Commerce, we perform logit analysis, linking the features of Chinese photovoltaic (PV) and wind investments in EU to the supporting policies, as well as to institutional factors and endowments of resources in home regions and host countries. Our paper confirms the findings of previous studies, as far as institutional factors and country endowments impact on location choice. For selective policies we get interesting outcomes. The host EU countries have acted as catalyst for Chinese investments in Europe in search for market opportunities, while generous production subsidies at provincial level in China have discouraged Chinese investments abroad.

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Source: CEER (2011, 2015)

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Notes

  1. According to Tan et al. (2013), this happened because Chinese firms accept lower returns.

  2. This is explained by the willingness of the German government to take advantage of the choice to phase out the domestic nuclear reactors by 2022 (a decision made after the Fukuyama disaster in 2011). To develop RE industry as a strategic industry, 5 targets were contemporaneously set: to minimize the cost of energy (to reduce to be comparable with that coming from fossil fuels), to reduce CO2 emissions, to push innovation and R&D efforts in the RE sector becoming the world leader in those technologies, also with the effect to improve competitiveness (by getting a worthwhile world market share) and to increase domestic employment (Pegels and Lütkenhorst 2014).

  3. This comparison is partially explained by a mix issue: the largest (in terms of MWh supported) renewable source financed in Italy is solar PV, while the most supported one in Germany is wind onshore. In both countries solar PV is more “expensive” (i.e. receives more support for MWh) than wind energy.

  4. Destination countries for the PV sector include Germany, Hungary, Spain, Netherlands, Sweden, UK, Slovakia, Luxembourg, France, Denmark, Belgium, Italy, Bulgaria, Czech Republic, Portugal, Austria and Romania.

  5. Destination countries for the wind sector include Germany, Spain, Luxembourg, Poland, Belgium, UK, Italy, Romania, Portugal, Denmark, Sweden, Netherlands, Bulgaria and France.

  6. We use a Logit model that is appropriate for location choice research (from home to host country). We build a choice set: all 18 destination countries in our sample can be a selection target. If a Chinese firm select Germany as invest destination, we code Germany as 1, while all the other 17 EU member states are coded as 0. Therefore, the 18 invested countries constitute a matrix in our study.

  7. Due to a serious multicollinearity between the gross tertiary education enrolment rate and GDP at the home region level, we dropped out the gross tertiary education enrolment rate in home region in the empirical models.

  8. See: http://www.weforum.org/reports/global-competitiveness-report-2014-2015. Although all EU countries are required to have the same trade policy under Art 133 of the EU Treaty, there are still differences at least in terms of the perceptions of firms. For example, Global Competitiveness Report 2013–2014 (Schwab 2013) indicates that the barriers to trade of Finland, Luxembourg, and Portugal are the most serious, while Romania, Poland and Italy are the least severe.

  9. BEICP is published by The National Economic Research Institute (NERI) of China and the China Reform Foundation. The NERI indexes are the official and most comprehensive measures of China’s multifaceted institutional development and have been widely used in recent studies (Gao et al. 2010; Liu et al. 2014).

  10. Compared to the 5 indicators in World Governance that are available within the Global Competitiveness Report, only “Prevalence of Trade Barriers” is significant in the model. Indeed, it is relevant considering that we are investigating internationalization issue and we can detect if the investments from China are “welcomed” by EU countries or if barriers in trade are perceived by foreign firms.

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Acknowledgements

This paper was funded by the following research Grants: National Natural Science Foundation of China (nos 71872168, 71472173) and People Programme (Marie Curie Actions) of the European Union’s Seventh Framework Programme FP7/2007-2013/under REA Grant agreement no 318908.

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  1. Dipartimento di Scienze Economiche e Aziendali, University of Parma, Via J. Kennedy, 6, Parma, Italy

    Augusto Ninni

  2. University of Chinese Academy of Sciences, No. 80 Zhongguancun East Road, Beijing, 100190, China

    Ping Lv & Pengqi Liu

  3. University of Macerata, Piaggia dell’Universita, Macerata, Italy

    Francesca Spigarelli

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Ninni, A., Lv, P., Spigarelli, F. et al. How home and host country industrial policies affect investment location choice? The case of Chinese investments in the EU solar and wind industries. J. Ind. Bus. Econ. 47, 531–557 (2020). https://doi.org/10.1007/s40812-020-00152-z

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