Host country environment and China’s outward foreign direct investment : risks and controversies
Date of Issue2019-05-15
S. Rajaratnam School of International Studies
Foreign Direct Investment (FDI) is perhaps the most active form of working capital which facilitates international growth in a way that traverses continents and borders. However, the capital flows may also depend on host-country environmental factors and home-country policy orientations. China has been a vibrant investor in developing economies and an influential global buyer from the early 2000s. Previous researches suggested that Chinese FDI concentrated primarily in highly unstable countries with abundant natural resources and was dominated by State-Owned Enterprises (SOEs). This study further discusses this question by examining what host-country factors influence Chinese FDI outflows, with a special focus on political-economic risks and intergovernmental partnerships. Based on the unique characteristics of Chinese institutions that shape the player structure and the supervision procedure of investors, I argue that Chinese investors are less sensitive to host country public risks but are influenced by intergovernmental connections. Empirical models with data covering 149 countries from 2007 to 2016 collectively show that Chinese investors crowd to highly unstable and indebted countries and attracted by the economic partnership. These unique investing propensities have aroused continuous controversies. Case studies of Zambia and Germany work to demonstrate how the controversial projects may go politicalized and elicit more stringent regulations targeting China. The study calls for formal risk-evaluating and monitoring processes among Chinese investors, and prudence for host country governments in attracting capital inflows, especially those already in debt and risks.
DRNTU::Social sciences::Political science