Outward Foreign Direct Investment: A Chinese Foreign Policy Tool

• In Event: Chinese Foreign Policy

Abstract

Chinese outward foreign direct investment (OFDI) increased exponentially following the 2008 Global Financial Crisis. What explains the global financial risk taking at the commercial level by an authoritarian state at such an increased pace? How do OFDI patterns vary? This paper contends that the Chinese government utilizes OFDI as a tool for foreign policy to achieve political economic ends. It adopts and operationalizes Hsueh’s (2011, 2016, and 2022) Strategic Value Framework, with its economic and political dimensions, to evaluate state motives and relationship to OFDI patterns. The paper hypothesizes that the Chinese government exploits OFDI based on the perceived strategic value of the investment destination for state goals of enhancing the national technology base, promoting the competitiveness of domestic industry, and achieving geopolitical ambitions. Cross-national pooled panel models with time fixed effects examine developed versus developing countries from 2003-2017. Empirical evidence supports technology intensity of exports from China (i.e., market access), technology intensity of imports to China (i.e., technology transfer or resources), host nation military expenditures (i.e., market access or technology transfer), and political affinity (measured by percentage of supportive United Nations roll-call votes on such issues as trade, security, and Taiwan) as determinants of China’s OFDI in developed and developing countries.

Authors

• James Aubrey Frick, U.S. Army War College

• Roselyn Hsueh, Temple University