The determinants of Chinese outward foreign direct investment
- 5.6k Downloads
This study investigates the determinants of Chinese outward direct investment (ODI) and the extent to which three special explanations (capital market imperfections, special ownership advantages and institutional factors) need to be nested within the general theory of the multinational firm. We test our hypotheses using official Chinese ODI data collected between 1984 and 2001. We find Chinese ODI to be associated with high levels of political risk in, and cultural proximity to, host countries throughout, and with host market size and geographic proximity (1984–1991) and host natural resources endowments (1992–2001). We find strong support for the argument that aspects of the special theory help to explain the behaviour of Chinese multinational enterprises.
KeywordsChina outward FDI theory of the multinational enterprise Chinese multinational firms
We thank Mark Casson for important comments, Tim Rose for his supportive work, and the referees and Focused Issue editors for their insightful and helpful comments.
- Aggarwal, R. and Agmon, T. (1990) ‘The international success of developing country firms: role of government-directed comparative advantage’, Management International Review 30 (2): 163–180.Google Scholar
- Antkiewicz, A. and Whalley, J. (2006) ‘Recent Chinese buyout activities and the implications for global architecture’, National Bureau of Economic Research (NBER) Working Paper 12072, NBER, Cambridge, MA.Google Scholar
- Buckley, P.J. and Casson, M. (1999) ‘A Theory of International Operations’, in P.J. Buckley and P.N. Ghauri (eds.) The Internationalization Process of the Firm: a Reader, 2nd edn, International Business Thomson: London, pp: 55–60.Google Scholar
- Buckley, P.J., Cross, A.R., Tan, H., Voss, H. and Liu, X. (2006) ‘An investigation of recent trends in Chinese outward direct investment and some implications for theory’, Centre for International Business University of Leeds Working Paper.Google Scholar
- Business Week (2004) ‘Big Blue's Bold Step into China’, 20 December: 33–34.Google Scholar
- Chen, X., Yung, R.L. and Zhang, B. (2002) China Manufacturing, BNP Paribas Peregrine Economics/Sector Update April 2002.Google Scholar
- Child, J. and Pleister, H. (2003) ‘Governance and management in China's private sector’, Management International 7 (3): 13–24.Google Scholar
- Dicken, P. (2003) Global Shift: Reshaping the Global Economic Map in the 21st Century, 4th edn, Sage: London.Google Scholar
- Dunning, J.H. (1993) Multinational Enterprises and the Global Economy, Addison-Wesley: Wokingham.Google Scholar
- Dunning, J.H. (2002) ‘Relational Assets, Networks, and International Business Activities’, in F.J. Contractor and P. Lorange (eds.) Cooperative Strategies and Alliances, Pergamon: Amsterdam, pp: 569–593.Google Scholar
- Dunning, J.H., van Hoesel, R. and Narula, R. (1998) ‘Third World Multinationals Revisited: New Developments and Theoretical Implications’, in J.H. Dunning (ed.) Globalization, Trade and Foreign Direct Investment, Elsevier: Amsterdam and Oxford, pp: 255–285.Google Scholar
- Guo, H. (1984) ‘On Establishment of Joint Ventures Abroad’, Almanac of China's Foreign Economic Relations and Trade, Ministry of Commerce: Beijing, pp: 652–654.Google Scholar
- Hall, T. (2004) ‘Controlling for risk: an analysis of China's system of foreign exchange and exchange rate management’, Columbia Journal of Asian Law 17 (2): 433–481.Google Scholar
- Heenan, D.A. and Keegan, W.J. (1979) ‘The rise of third world multinationals’, Harvard Business Review 57 (1): 101–109.Google Scholar
- International Monetary Fund (IMF) (2005) World Economic Outlook Database, [www document] http://www.imf.org/external/pubs/ft/weo/2005/01/data/dbcsubm.cfm. (accessed 26 September 2006).
- Kent, R.B. (2003) ‘A Diaspora of Chinese Settlement in Latin America and the Caribbean’, in L.J.C. Ma and C. Cartier (eds.) The Chinese Diaspora: Space, Place, Mobility, and Identity, Rowman & Littlefield: Lanham, pp: 117–138.Google Scholar
- Kohlhagen, S.W. (1977) ‘The Effects of Exchange-Rate Adjustments on International Investment: Comment’, in P.B. Clark, D.E. Logue and R. Sweeney (eds.) The Effects of Exchange Rate Adjustments, US Government Printing Office: Washington, DC, pp: 194–197.Google Scholar
- Lardy, N.R. (1998) China's Unfinished Economic Revolution, Brookings Institution: Washington, DC.Google Scholar
- Lawrence, S.V. (2002) ‘Going global’, Far Eastern Economic Review 165 (12): 32.Google Scholar
- Liu, L. (2005) China's Industrial Policies and the Global Business Revolution: The Case of the Domestic Appliance Industry, RoutledgeCurzon: London.Google Scholar
- Logue, D.E. and Willet, T.D. (1977) ‘The Effects of Exchange-Rate Adjustments on International Investment’, in P.B. Clark, D.E. Logue and R. Sweeney (eds.) The Effects of Exchange Rate Adjustments, US Government Printing Office: Washington, DC, pp: 137–150.Google Scholar
- Luo, Y. (1997) ‘Guanxi: principles, philosophies, and implications’, Human Systems Management 16 (1): 43–51.Google Scholar
- Ma, L.J.C. (2003) ‘Space, Place, and Transnationalism in the Chinese Diaspora’, in L.J.C. Ma and C. Cartier (eds.) The Chinese Diaspora: Space, Place, Mobility, and Identity, Rowman & Littlefield: Lanham, pp: 1–4.Google Scholar
- MOFCOM (various years) Almanac of China's Foreign Relations and Trade, Ministry of Commerce (MOFCOM): Beijing.Google Scholar
- MOFCOM (2004) China Commerce Yearbook [Zhongguo shangwu nianjian] Ministry of Commerce (MOFCOM): Beijing.Google Scholar
- National Bureau of Statistics (2005) China Statistical Yearbook 2005, China Statistics Press: Beijing.Google Scholar
- Ohio University (2006) Distribution of the Ethnic Chinese Population Around the World, University Libraries, Ohio University [www document] http://cicdatabank.library.ohiou.edu/opac/population.php. (accessed 17 May 2006).
- Political Risk Services (PRS) (2005) International Country Risk Guide (ICRG), [www document] www.prsgroup.com/ICRG.aspx. (accessed April 2005).
- Pradhan, J.P. (2003) ‘Outward foreign direct investment from India: recent trends and patterns’, Jawaharlal Nehru University Working Paper Series, Jawaharlal Nehru University, New Delhi.Google Scholar
- Rowen, H.S. (2003) ‘Will China take over world manufacturing?’ The International Economy 17 (1): 72.Google Scholar
- Sauvant, K. (2005) ‘New sources of FDI: The BRICs. Outward FDI from Brazil, Russia, India and China’, Journal of World Investment and Trade 6 (October): 639–709.Google Scholar
- Sikorski, D. and Menkhoff, T. (2000) ‘Internationalisation of Asian business’, Singapore Management Review 22 (1): 1–17.Google Scholar
- Stevens, G.V.G. (1993) ‘Exchange rates and foreign direct investment: a note’, International Finance Discussion Papers, April, No. 444, Board of Governors of the Federal Reserve System, Washington, DC.Google Scholar
- Sung, Y.-W. (1996) ‘Chinese outward investment in Hong Kong: trends, prospects and policy implications’, OECD Development Centre Technical Papers, No. 113, Organisation for Economic Cooperation and Development, Paris.Google Scholar
- Swystun, J., Burt, F. and Ly, A. (2005) The Strategy for Chinese Brands: Part 1 – The Perception Challenge, [www document] http://www.interbrand.com. (accessed 11 January 2006), Interbrand White Paper, Interbrand, New York.
- Tong, S.Y. (2003) ‘Ethnic Chinese networking in cross-border investment: the impact of economic and institutional development’, Hong Kong Institute of Economics and Business Strategy (HIEBS) Working Paper, University of Hong Kong, Hong Kong.Google Scholar
- Tsai, K.S. (2002) Back-Alley Banking: Private Entrepreneurs in China, Cornell University Press: Ithaca.Google Scholar
- UNCTAD (1998) World Investment Report 1998: Trends and Determinants, United Nations: New York and Geneva.Google Scholar
- UNCTAD (2003) World Investment Report 2003: FDI Policies for Development: National and International Perspectives, United Nations: New York and Geneva.Google Scholar
- UNCTAD (2005a) World Investment Report 2005: Transnational Corporations and the Internationalization of R&D, United Nations: New York and Geneva.Google Scholar
- UNCTAD (2005b) Prospects for Foreign Direct Investment and the Strategies of Transnational Corporations, 2005–2008, United Nations: New York and Geneva.Google Scholar
- UNCTAD (2006) ‘FDI/TNC database’, [www document] http://stats.unctad.org/fdi. (accessed 09 May 2006).
- UN Statistics Division (2006) UN Demographic Yearbook Special Census Topics, [preliminary release 27 March 2006] [www document] http://unstats.un.org/unsd/demographic/products/dyb/dybcens.htm. (accessed 17 May 2006).
- Villela, A.V. (1983) ‘Transnationals from Brazil’, in S. Lall (ed.) The New Transnationals: The Spread of Third World Transnationals, John Wiley: Chichester, pp: 220–249.Google Scholar
- Wells, L.T. (1983) Third World Multinationals: The Rise of Foreign Investments from Developing Countries, MIT Press: Cambridge, MA.Google Scholar
- WIPO (World Intellectual Property Organisation) (2006) Patents and PCT statistics, [www document] http://www.wipo.int/ipstats/en/statistics/patents/. (accessed 26 September 2006).
- Wong, J. and Chan, S. (2003) ‘China's outward direct investment: expanding worldwide’, China: An International Journal 1 (2): 273–301.Google Scholar
- World Bank (2005) World Development Indicators (WDI) April 2005, ESDS International, (MIMAS) University of Manchester.Google Scholar
- World Bank (2006) Indicators of Governance and Institutional Quality, [www document] http://siteresources.worldbank.org/INTLAWJUSTINST/Resources/IndicatorsGovernanceandInstitutionalQuality.pdf. (accessed 16 January 2006).
- Wu, F. and Sia, Y.H. (2002) ‘China's rising investment in Southeast Asia: trends and outlook’, Journal of Asian Business 18 (2): 41–61.Google Scholar
- Ye, G. (1992) ‘Chinese transnational corporations’, Transnational Corporations 1 (2): 125–133.Google Scholar
- Yu, A., Chao, H. and Dorf, M. (2005) ‘Outbound investments by Chinese companies: the Chinese government approval regime’, Topics in Chinese Law, O’Melveny&Myers Research Report, November 2005.Google Scholar
- Zhan, J.X. (1995) ‘Transnationalization and outward investment: the case of Chinese firms’, Transnational Corporations 4 (3): 67–100.Google Scholar