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.
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In this paper, we take the standard UNCTAD definition of FDI as being an investment involving a long-term relationship and reflecting a lasting interest and control by a firm in an enterprise resident in a foreign country (UNCTAD, 2005a). FDI normally has three components: (1) equity capital (the purchase of shares in the foreign enterprise); (2) reinvested earnings (those earnings not distributed as dividends by foreign affiliates or remitted to the investor enterprise); and (3) intra-company loans or debt transactions (borrowing and lending between parent and foreign affiliate enterprises) (UNCTAD, 2005a).
In this study, the terms ‘China’ and ‘Mainland China’ are used interchangeably to refer to the People's Republic of China (PRC). For our purposes, the PRC excludes the special autonomous regions of Hong Kong and Macau, unless specifically stated. The Republic of China (Taiwan) is treated as a separate economy. Regions with disputed borders (e.g., the Spratly Islands) are excluded from our definition of the PRC.
Although it post-dates the time frame of the current study, the establishment of a special state fund (valued by some at around US$15bn) available to qualifying Chinese firms for the acquisition of foreign brands and companies underscores these points (Swystun et al., 2005).
We are grateful to one of the reviewers for this point.
Overseas Chinese are defined by Poston et al. (1994: 633) as ‘all Chinese living outside mainland China and Taiwan, including Huaqiao (Chinese citizens residing abroad), Huaren (naturalized citizens of Chinese descent) and Huayi (descendants of Chinese parents)’.
This also reflects the regulatory framework of Chinese ODI over the majority of the period under study. Until quite recently, Chinese firms were obliged to repatriate overseas earnings to financial authorities at home, while the ability to make inter-company loans was highly restricted under China's foreign exchange controls.
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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.
Accepted by Rosalie L Tung and Yadong Luo, Departmental Editors, 23 November 2006. This paper has been with the authors for two revisions.
A correction to this article is available at http://dx.doi.org/10.1057/jibs.2008.102
Countries host to Chinese ODI in the data set
OECD countriesAustralia, Austria, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Italy, Japan, Mexico, Netherlands, New Zealand, Poland, Portugal, South Korea, Spain, Sweden, United Kingdom, United States
Non-OECD countriesAlgeria, Argentina, Armenia, Brazil, Bulgaria, Chile, Colombia, Croatia, Cyprus, Ecuador, Egypt, Ghana, Hong Kong SAR, India, Indonesia, Israel, Malaysia, Morocco, Nigeria, Philippines, Russia, Singapore, South Africa, Sudan, Thailand, Ukraine, Venezuela
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Buckley, P., Clegg, L., Cross, A. et al. The determinants of Chinese outward foreign direct investment. J Int Bus Stud 38, 499–518 (2007). https://doi.org/10.1057/palgrave.jibs.8400277
- outward FDI
- theory of the multinational enterprise
- Chinese multinational firms