Asia Pacific Journal of Management

, Volume 35, Issue 1, pp 11–37 | Cite as

Exploring China’s state-led FDI model: Evidence from the extractive sectors in Latin America

  • Daniel M. ShapiroEmail author
  • Carlos Vecino
  • Jing Li


Our study explores an under-examined way in which the Chinese government supports outward foreign direct investment (OFDI): state supported development loans to host countries. Through such loans, the Chinese government develops commercial and diplomatic relationships with host countries, which in turn facilitate Chinese firms’ access to natural resources while at the same time limiting their exposure to host country political risk. We provide evidence in Latin America that although Chinese OFDI occurs in countries where government-related political risk is high, Chinese firms are less likely to be involved in public disputes with the host government. However, they are more likely to engage in conflicts with nongovernment stakeholders. Thus, while the Chinese government may assist in obtaining a political or legal license to operate, Chinese firms appear to have more difficulty obtaining a social license to operate, suggesting that the Chinese model has limits, notably with respect to mitigating social risks.


Outward FDI Emerging markets Natural resources Extractives China Latin America Political risk 



We thank Mike Peng (Consulting Editor) and two anonymous reviewers for their insightful comments and suggestions. Earlier versions of this paper were presented at Copenhagen Business School, Center for Emerging Markets at Northeastern University, and the Jack Austin Centre for Asia-Pacific Business Studies at Simon Fraser University. We acknowledge with gratitude the comments of Ilan Alon, Alvaro Cuervo-Cazurra, and Ravi Ramamurti. We are grateful for funding support from the Canada Research Chairs program, the Social Sciences and Humanities Research Council of Canada, and the Jack Austin Centre for Asia-Pacific Business Studies at Simon Fraser University.


  1. Alon, I., Leung, G. C. K., & Simpson, T. J. 2015. Outward foreign direct investment by Chinese national oil companies. Journal of East-West Business, 21(4): 292–312.Google Scholar
  2. Alon, I., & Martin, M. A. 1998. A normative model of macro political risk assessment. Multinational Business Review, 6(2): 10.Google Scholar
  3. Armony, A. C., & Strauss, J. C. 2012. From going out (zou chuqu) to arriving in (desembarco): Constructing a new field of inquiry in China-Latin America interactions. China Quarterly, 209: 1–17.Google Scholar
  4. Attig, N., Boubakri, N., El Ghoul, S., & Guedhami, O. 2016. Firm internationalization and corporate social responsibility. Journal of Business Ethics, 134: 171–197.Google Scholar
  5. Boddewyn, J. 1988. Political aspects of MNE theory. Journal of International Business Studies, 19(1): 341–363.Google Scholar
  6. Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H., & Zheng, P. 2007. The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38(4): 499–518.Google Scholar
  7. Buckley, P. J., Clegg, J. L., Cross, A. R., & Voss, H. 2010. What can emerging markets learn from the outward direct investment policies of advanced countries? In W. A. Maschek, G. McAllister, & K. P. Sauvant (Eds.). Foreign direct investments from emerging markets: 243–276. New York: Palgrave Macmillan.Google Scholar
  8. Buckley, P. J., Yu, P., Liu, Q., Munjal, S., & Tao, P. 2016. The institutional influence on the location strategies of multinational enterprises from emerging economies: Evidence from China’s cross-border mergers and acquisitions. Management and Organization Review, 12(3): 425–448.Google Scholar
  9. Child, J., & Marinova, S. 2014. The role of contextual combinations in the globalization of Chinese firms. Management and Organization Review, 10(3): 347–371.Google Scholar
  10. China-Latin America Finance Database. 2015. Inter-American dialogue., Accessed Dec. 10, 2016.
  11. Cuervo-Cazurra, A., & Genc, M. E. 2011. Obligating, pressuring, and supporting dimensions of the environment and the non-market advantages of developing-country multinational companies. Journal of Management Studies, 48: 441–455.Google Scholar
  12. Cuervo-Cazurra, A., & Genc, M. 2008. Transforming disadvantages into advantages: Developing-country MNEs in the least developed countries. Journal of International Business Studies, 39(6): 957–979.Google Scholar
  13. Cuervo-Cazurra, A., Inkpen, A., Musacchio, A., & Ramaswamy, K. 2014. Governments as owners: State-owned multinational companies. Journal of International Business Studies, 45(8): 919–942.Google Scholar
  14. Cui, L., & Jiang, F. M. 2012. State ownership effect on firms’ FDI ownership decisions under institutional pressure: A study of Chinese outward-investing firms. Journal of International Business Studies, 43(3): 264–284.Google Scholar
  15. de Bolle, M. 2015. Do public development banks hurt growth?. Evidence from Brazil. Peterson Institute for International Economics Policy Brief, PB15–16: 1–15.Google Scholar
  16. Demuijnck, G. & Fasterling, B. 2016. The social license to operate. Journal of Business Ethics, 136(4): 675–685.Google Scholar
  17. den Hond, F., Rehbein, K. A., de Bakker, F. G. A., & Kooijmans-van Lankveld, H. 2014. Playing on two chessboards: Reputation effects between corporate social responsibility (CSR) and corporate political activity (CPA). Journal of Management Studies, 51(5): 790–813.Google Scholar
  18. Deng, P. 2013. Chinese outward direct investment research: Theoretical integration and recommendations. Management and Organization Review, 9(3): 513–539.Google Scholar
  19. Desbordes, R., & Vicard, V. 2009. Foreign direct investment and bilateral investment treaties: An international political perspective. Journal of Comparative Economics, 37(3): 372–386.Google Scholar
  20. Du, S. L., & Vieira, E. T. 2012. Striving for legitimacy through corporate social responsibility: Insights from oil companies. Journal of Business Ethics, 110(4): 413–427.Google Scholar
  21. Duanmu, J. L. 2014. State-owned MNCs and host country expropriation risk: The role of home state soft power and economic gunboat diplomacy. Journal of International Business Studies, 45(8): 1044–1060.Google Scholar
  22. Economist. 2017. “One belt, one road”: An economic road map., Accessed May 12, 2017.
  23. Elkins, Z., Guzman, A. T., & Simmons, B. A. 2006. Competing for capital: The diffusion of bilateral investment treaties, 1960–2000. International Organization, 60(4): 811–846.Google Scholar
  24. Frynas, J.G., Mellahi, K., & Pigman, G.A. 2006. First mover advantages in international business and firm-specific political resources. Strategic Management Journal, 27(4): 321–345.Google Scholar
  25. Gallagher, K. P., & Irwin, A. 2014. Exporting national champions: China’s outward foreign direct investment finance in comparative perspective. China & World Economy, 22(6): 1–21.Google Scholar
  26. Gallagher, K. P., & Irwin, A. 2015. China’s economic statecraft in Latin America: Evidence from China’s policy banks. Pacific Affairs, 88(1): 99–121.Google Scholar
  27. Gallagher, K. P., Kamal, R., & Wang, Y. 2016. Fueling growth and financing risk: The benefits and risks of China’s development finance in the global energy sector. Global Economic Governance Initiative working paper no. 002. Boston University., Accessed May 31, 2017.
  28. Gifford, B., Kestler, A., & Anand, S. 2010. Building local legitimacy into corporate social responsibility: Gold mining firms in developing nations. Journal of World Business, 45: 304–311.Google Scholar
  29. Globerman, S., & Shapiro, D. 2009. Economic and strategic considerations surrounding Chinese FDI in the United States. Asia Pacific Journal of Management, 26(1): 163–183.Google Scholar
  30. Gonzalez-Vicente, R. 2012. Mapping Chinese mining investment in Latin America: Politics or market?. China Quarterly, 209: 35–58.Google Scholar
  31. Henisz, W. J. 2016. The dynamic capability of corporate diplomacy. Global Strategy Journal, 6(3): 183–196.Google Scholar
  32. Henisz, W. J., & Delios, A. 2004. Information or influence? The benefits of experience for managing political uncertainty. Strategic Organization, 2(4): 389–421.Google Scholar
  33. Henisz, W. J., Dorobantu, S., & Nartey, L. J. 2014. Spinning gold: The financial returns to stakeholder engagement. Strategic Management Journal, 35(12): 1727–1748.Google Scholar
  34. Hillman, A. 2003. Determinants of political strategies in US multinationals. Business and Society, 42(4): 455–484.Google Scholar
  35. Hillman, A. J., & Hitt, M. A. 1999. Corporate political strategy formulation: A model of approach, participation, and strategy decisions. Academy of Management Review, 24(4): 825–842.Google Scholar
  36. Hilson, G. 2012. Corporate social responsibility in the extractive industries: Experiences from developing countries. Resources Policy, 37: 131–137.Google Scholar
  37. Hobdari, B., Gammeltoft, P., Li, J., & Meyer, K. 2017. The home country of the MNE: The case of emerging economy firms. Asia Pacific Journal of Management, 34(1): 1–17.Google Scholar
  38. Hochstetler, K. 2014. The Brazilian National Development Bank goes international: Innovations and limitations of BNDES’ internationalization. Global Policy, 5(3): 360–365.Google Scholar
  39. Irwin, A., & Gallagher, K. P. 2013. Chinese mining in Latin America: A comparative perspective. Journal of Environment & Development, 22(2): 207–234.Google Scholar
  40. Jamali, D., & Karam, C. 2016. Corporate social responsibility in developing countries as an emerging field of study. International Journal of Management Reviews. doi: 10.1111/ijmr.12112.
  41. Jandhyala, S., & Weiner, R. J. 2014. Institutions sans frontières: International agreements and foreign investment. Journal of International Business Studies, 45(6): 649–669.Google Scholar
  42. Jensen, N. 2008. Political risk, democratic institutions, and foreign direct investment. Journal of Politics, 70(4): 1040–1052.Google Scholar
  43. Kostova, T., & Zaheer, S. 1999. Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Review, 24(1): 64–81.Google Scholar
  44. Krauss, C., & Bradsher, K. 2015. China’s global ambitions, cash and strings attached., Accessed Jan. 3, 2017.
  45. Lazzarini, S. G., Musacchio, A., Bandeira-de-Mello, R., & Marcon, R. 2015. What do state-owned development banks do? Evidence from BNDES, 2002–09. World Development, 66: 237–253.Google Scholar
  46. Li, H., & Zhang, Y. 2007. The role of managers’ political networking and functional experience in new venture performance: Evidence from China’s transition economy. Strategic Management Journal, 28(8): 791–804.Google Scholar
  47. Li, J., Newenham-Kahindi, A., Shapiro, D. M., & Chen, V. Z. 2013. The two-tier bargaining model revisited: Theory and evidence from China’s natural resource investments in Africa. Global Strategy Journal, 3(4): 300–321.Google Scholar
  48. Li, J., Xia, J., & Lin, Z.Y. 2017. Cross-border acquisitions by state-owned firms: How do legitimacy concerns affect the completion and duration of their acquisitions?. Strategic Management Journal. doi: 10.1002/smj.2609.
  49. Li, M. H., Cui, L., & Lu, J. Y. 2014. Varieties in state capitalism: Outward FDI strategies of central and local state-owned enterprises from emerging economy countries. Journal of International Business Studies, 45(8): 980–1004.Google Scholar
  50. Li, Q. A., & Vashchilko, T. 2010. Dyadic military conflict, security alliances, and bilateral FDI flows. Journal of International Business Studies, 41(5): 765–782.Google Scholar
  51. Lipscy, P. Y. 2015. Who’s afraid of the AIIB: Why the United States should support China’s Asian Infrastructure Investment Bank., Accessed May 7, 2015.
  52. Lu, J., Li, W., Wu, A., & Huang, X. 2017. Political hazards and entry modes of Chinese investments in Africa. Asia Pacific Journal of Management, Forthcoming.Google Scholar
  53. Ludeña, M. P. 2012. Is Chinese FDI pushing Latin America into natural resources?. Columbia FDI Perspectives, 63: Mar. 19., Accessed Jan. 16, 2017.
  54. Luo, Y. D., & Tung, R. L. 2007. International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies, 38(4): 481–498.Google Scholar
  55. Luo, Y. D., Xue, Q. Z., & Han, B. J. 2010. How emerging market governments promote outward FDI: Experience from China. Journal of World Business, 45(1): 68–79.Google Scholar
  56. Marano, V., & Kostova, T. 2016. Unpacking the institutional complexity in adoption of CSR practices in multinational enterprises. Journal of Management Studies, 53: 28–54.Google Scholar
  57. Mellahi, K., Frynas, J. G., Sun, P., & Siegel, D. 2016. A review of the nonmarket strategy literature: Toward a multi-theoretical integration. Journal of Management, 42(1): 143–173.Google Scholar
  58. Meyer, K. E., Ding, Y., Li, J., & Zhang, H. 2014. Overcoming distrust: How state-owned enterprises adapt their foreign entries to institutional pressures abroad. Journal of International Business Studies, 45(8): 1005–1028.Google Scholar
  59. Moffat, K., & Zhang, A. R. 2014. The paths to social licence to operate: An integrative model explaining community acceptance of mining. Resources Policy, 39: 61–70.Google Scholar
  60. Moran, T. 2010. China’s strategy to secure natural resources. Washington, DC: Peterson Institute.Google Scholar
  61. Neumayer, E., & Spess, L. 2005. Do bilateral investment treaties increase foreign direct investment to developing countries?. World Development, 33(10): 1567–1585.Google Scholar
  62. Owen, J. R., & Kemp, D. 2013. Social licence and mining: A critical perspective. Resources Policy, 38(1): 29–35.Google Scholar
  63. Pan, Y. G., Teng, L. F., Supapol, A. B., Lu, X. W., Huang, D., & Wang, Z. N. 2014. Firms’ FDI ownership: The influence of government ownership and legislative connections. Journal of International Business Studies, 45(8): 1029–1043.Google Scholar
  64. Peng, M. W. 2012. The global strategy of emerging multinationals from China. Global Strategy Journal, 2(2): 97–107.Google Scholar
  65. Peng, M., & Luo, Y. 2000. Managerial ties and firm performance in a transition economy: The nature of a micro-macro link. Academy of Management Journal, 43(3): 486–501.Google Scholar
  66. Peters, E. D. 2015. China’s evolving role in Latin America: Can it be a win-win?. Atlantic Council Report., Accessed Jan. 16, 2017.
  67. Pinkham, B. C., & Peng, M. W. 2017. Overcoming institutional voids via arbitration. Journal of International Business Studies, 48(3): 344–359.Google Scholar
  68. Prno, J., & Slocombe, D.S. 2012. Exploring the origins of ‘social license to operate’ in the mining sector: Perspectives from governance and sustainability theories. Resources Policy, 37(3): 346–357.Google Scholar
  69. Ramamurti, R. 2001. The obsolescing ‘bargaining model’? MNC-host developing country relations revisited. Journal of International Business Studies, 32(1): 23–39.Google Scholar
  70. Savage, G. T., Nix, T. W., Whitehead, C. J., & Blair, J. D. 1991. Strategies for assessing and managing organizational stakeholders. Academy of Management Executive, 5(2): 61–75.Google Scholar
  71. Simon, J. D. 1984. A theoretical perspective on political risk. Journal of International Business Studies, 15(3): 123–143.Google Scholar
  72. Stevens, C. E., Xie, E., & Peng, M. W. 2016. Toward a legitimacy-based view of political risk: The case of Google and Yahoo in China. Strategic Management Journal, 37(5): 945–963.Google Scholar
  73. Stroebel, J., & van Benthan, A. 2013. Investment treaties and hydrocarbon taxation in developing countries. In C. Fuest & G. Zodrow (Eds.). Taxation in developing countries: 83–108. Cambridge: MIT Press.Google Scholar
  74. Sun, P., Mellahi, K., & Thun, E. 2010. The dynamic value of MNE political embeddedness: The case of the Chinese automobile industry. Journal of International Business Studies, 41(7): 1161–1182.Google Scholar
  75. Sutherland, D., & Anderson, J. 2015. The pitfalls of using foreign direct investment data to measure Chinese multinational enterprise activity. China Quarterly, 221: 21–48.Google Scholar
  76. Trevino, L. J., Thomas, D. E., & Cullen, J. 2008. The three pillars of institutional theory and FDI in Latin America: An institutionalization process. International Business Review, 17(1): 118–133.Google Scholar
  77. United Nations Economic Commission on Latin America and the Caribbean (UNECLCA). 2015. Latin America and the Caribbean and China: Towards a new era in economic cooperation., Accessed May 14, 2017.
  78. Vernon, R. 1971. Sovereignty at bay. New York: Basic Books.Google Scholar
  79. Wang, C. Q., Hong, J., Kafouros, M., & Wright, M. 2012. Exploring the role of government involvement in outward FDI from emerging economies. Journal of International Business Studies, 43(7): 655–676.Google Scholar
  80. Wolf, C., Wang, X., & Warner, E. 2013. China’s foreign aid and government-sponsored investment activities: Scale, content, destinations, and implications. Santa Monica: RAND Corporation., Accessed Jan. 16, 2017.

Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.Beedie School of BusinessSimon Fraser UniversityBurnabyCanada
  2. 2.Escuela de Estudios Industriales y EmpresarialesUniversidad Industrial de SantanderBucaramangaColombia
  3. 3.Beedie School of BusinessSimon Fraser UniversityBurnabyCanada

Personalised recommendations