Commerce or Alliance: China's Outbound Investment

• In Event: Outgoing China: Domestic Politics and International Implications

Abstract

China has transitioned from the world’s major destination for foreign direct investment (FDI) to an important origin country. With the launch of the Belt and Road, China has become a net and rapidly rising capital exporter in the world. The literature on its outbound investment is divided: comparative scholars have studied cases of China’s OFDI and deduced strategic and political motivations, while international economists have applied general investment theories to large-n statistics and found commercial determinants. This paper reconciles the two scholarships and hypothesizes that 1) Chinese state has important economic and political priorities that influence outbound capital, and 2) Chinese investors eek to maximize commercial interests as they invest abroad. The paper compiles and tests three sets of materials from 2005 to 2019. First, it analyzes the government stated policy priorities regarding overseas investment. Second, it conducts correlational tests between commercial and strategic drivers and China’s FDI outflows. Third, it provides a statistical testing of competing explanations for China’s outbound FDI. The findings are two-fold: first, China’s policy guidelines vary across regions. In Europe, it is mainly commercial concerns; in Africa, it is politics and diplomacy; in Southeast Asia, both political and economic drivers are emphasized. Second, the correlational and statistical tests confirm commercial determinants in all three regions; furthermore, the most salient driver has been China’s domestic capital surplus.

Author

• Min Ye, Boston University