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Introduction
Since the opening of their borders to inward and outward flows of capitals,
Chinese managerial beliefs and actions have contributed to generate a revolution with
incrementing repercussions in multiple sectors worldwide. While Western pillars have
been sprawling globally uninterruptedly since the beginning of the 20
th
century, Chinese
Multi- oked out their national edges since
the Nineties and offered valid alternatives to developing countries unsatisfied by the
tenets of the Western world. The participation of China in international affairs has
halved the pundits between those who openly criticize domestic public policies and
blurry intentions pushing Chinese Outward Foreign Direct Investment (OFDI) and
others who undeniably claim that the entrenchment of Chinese business perspectives
and values in the rapid global transformations has produced more benefits than
disadvantages.
In light of this endless debate, the first objective of the following thesis is to
depict a holistic review of the literature involved in the investigation of the fundamental
drivers that led Chinese outward FDI to expand consistently and widely, even in remote
areas of the planet. Secondly, the literature witnesses how domestic political factors
cannot be neglected when Chinese OFDI is detected because political orientations of the
Chinese Communist Party (CCP) have steered the localization of foreign opportunities
since the emergence of Chinese MNEs, often with scarce consideration for economic
principles. However, the Chinese openness to multilateral agreements and the entrance
in the WTO have imposed a substantial reform in the determinants of Chinese OFDI
which have to overcome potential short-sighted domestic political interests. Therefore,
the research question which arose after conducting a thorough literature review is
hereby stated:
Is Chinese OFDI mainly driven by financial opportunities in foreign markets nowadays,
or pushed by domestic political interests?
In relation to the posed research question, the principal objective of the
dissertation comes down to the possibility to identify the level of influence played by a
selected pool of political variables on one side and economic-related factors on the
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other; in other words, detecting the relevance of financial and political facets in foreign
investments of Chinese Multi-National Companies (MNCs) by analyzing the
foundational reasons of Chinese investments in identified top investment recipient
countries. Thus, the dissertation is structured following the principal aspects of a meta-
analysis because it derives from the examination of a vast number of independent
studies in order to determine both general and specific trends in the field of research.
More specifically, academic peer-reviewed reports, articles from top-tier journals, and
databases have been consulted thoroughly following the different steps of
brainstorming, evaluation and documentation of the search process to limit the impact
of various biases that may compromise the reliability of the findings. Additionally, the
literature review was narrowly focused on the analysis of sources related to the
development of OFDI in Asian Pacific countries starting from the early years of the new
in China up to recent
publications. However, no distinction was carried out about the provenance of different
authors and studies. Other search filters were limited so that pinpointing financial and
political factors which have driven Chinese OFDI along the past two decades would
give on to a more accurate and complete process. Mere qualitative sources have been
mostly omitted to concentrate on studies providing new scientific knowledge.
In order to achieve the main objective stated above, I have decided not to collect
any primary data because reliable data is made available by many international
institutions such as the International Monetary Fund (IMF), the World Bank, and the
Organization of Economic Co-operation and Development (OECD). Moreover, the
amplitude of my research would have made the process of primary data identification
cumbersome besides generating disruptive noise and natural errors that might
complicate the interpretation of results. Both quantitative and qualitative data was
included in the analytical process in order to identify historical trends and future
forecasts in the Chinese OFDI environment and to select the appropriate Chinese OFDI
drivers in the strategic sectors of the investigated recipient countries. After gathering
relevant data, an Augmented Chinese OFDI model was developed to quantify dynamic
linkages across variables and to perform valid inference. The construction of this model
permitted to introduce a new methodology which differs from the widely studied gravity
models to explain volume of trade or capital flows through the attractive force concept
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(Mele & Quarto, 2017). Specifically, gravity models related to the Chinese OFDI
evolution include both gravity and other variables which may explain the direction of
the phenomenon, but they do not provide any formal distinction of variables.
Successively, a panel data was built, and an OLI regression was run to compute partial
effects between cross-sectional time-series variables. The dependent variable of the
Augmented Chinese OFDI Model was identified in the share of Chinese OFDI in the
respective recipient countries along the years. A professional and handy econometric
software (Gretl) has been used to estimate the different regressors. Finally, the
robustness of the findings has been detected to point out strong empirical and scientific
outcomes as well as potential pitfalls.
The structure of the dissertation is divided into three chapters. The first chapter
offers a detailed overview of the evolution of Chinese OFDI starting from the
implementation of the Open-Door Policy in 1978 up to the trends leading the
contemporary business context, underlining the different motives that guided
internationalization strategies carried out by Multinational Companies (MNCs).
Particularly, the impact of CCP initiatives and the influence of politically-
appointed executives engaged in investment decisions of State Owned Enterprises
(SOE) are discussed since top politically-related managers of Chinese MNCs are
considered a decisive driver which contributed to the expansion of Chinese values
worldwide and quickly transformed international investment dynamics and beliefs (Pan
et al., 2020). The second chapter narrows down the research field through the
identification of the five top recipient countries of Chinese investment, namely USA,
Indonesia, Australia, Vietnam and Germany. The reciprocal relationships in terms of
investment flows between China and the mentioned countries will be analyzed along the
chosen five-year timespan i.e. from 2015 to 2019. Common and different motives of
investments in countries that are socially, culturally and geographically distant will be
also specified. Furthermore, it will be stated why round-tripping investment destinations
which absorb a large portion of Chinese OFDI have been excluded from the paneling
technique. After outlining the level of connection between the economies, a pool of
selected variables will be discussed and split in different clusters so that political-related
and economic-related factors can be easily distinguished. The third chapter entitled
draws the main findings of the model and underlines
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pivotal keys in the investment decision processes of Chinese MNEs regarding the
selected countries. Large space will be given to macroeconomic and managerial
implications both for China and host investment countries, discerned by the
interpretation of results. Finally, weaknesses of the performed analysis and room for
theoretical improvements are identified to finetune the research while the section
s to extend on what was
structured and open up queries for discussions.
Chapter 1: The Evolution of Chinese Outward FDI Drivers
The accession of China to the World Trade Organization (WTO) in 2001, the
adoption of bilateral investment treaties to regulate investment provisions and the
commencement of infrastructure projects under the Belt and Road Initiative (BRI)
throughout seventy countries have been enormous signals of the groundbreaking vision
of the CCP to liberalize OFDI since the embracement of the Zou
chu qu ) in 1999 (Di Minin et al., 2012). Yet, the expansion of Chinese investments
internationally has contributed to the emergence of systemic threats in national markets
(Zakari, 2017). Not by chance, the internationalization route of China has been
commanded by large - relatively inefficient - State-Owned Enterprises (SOEs) while
more efficient private enterprises have remained largely domestic. This paradox
emerged due to the political influence of the CCP in directing capitals and resources to
strategic industries for political interests. Consequently, international policy makers
have also recognized potential threats related to an uncontrollable inflow of Chinese
capital in foreign markets, but the reliance on the eye-catching Chinese demand and
affordable labor costs have initially convinced Western MNEs to lobby in order not to
hinder the expanding trend of Chinese OFDI (Rosen & Hanemann, 2012). Therefore,
the process of lifting barriers and reducing obstacles to international trade and
investment was not halted by the Chinese interference (Jiang, 2014). In this quest for
free-market optimum in international capital circulation, many countries saw their
integrity jeopardized by the entrance of Chinese MNEs in the chess game while
misperceptions in the drivers, mot to great power status (Mearsheimer, 2006). The instability of macroeconomic indicators
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volatility crisis, the cannibalization of local
activities and the deterioration of working conditions and human rights in receiving
countries are just few accusations out of the many that Chinese MNCs have been
framed after exporting maliciously their activities and resources (Adewole &
Ogunrinu, 2019). Thus, if Chinese investors were initially welcomed as good
Samaritans in low-income developing countries (LIDC) or as providers of a valid
alternative to inefficient strategies of Western capitalists in emerging and developed
countries, their reputation has worsened significantly after unbridled labor-seeking,
resource-seeking and technology-seeking practices were implemented. Even when
acquired international expertise allowed Chinese MNEs to promote strategic asset-
seeking investments in advanced economies, their perception remained biased. In this
regard, Di Minin et al. point out the three- et, moving to
the blending of innovative technologies with domestic R&D activities and reaching the
final state of technology exploitation. The acquisition of a wide array of
internationalization routes has given China the possibility to get access to critical
resources and capabilities which accelerated a swift scaling from the position of late-
follower to rapid- This is undoubtedly certified by the
rampant growth of both Chinese inward and outward FDI making the country the
leading source and recipient of FDI in 2020 (Svoboda, 2020). This achievement gives
credit to those scholars and business experts who, while focusing on the studies and
drawings of the evolutionary trajectory of Chinese FDI in the last three decades,
expressed a common sense of astonishment, partially derived from the unique features
that the Chinese political economy has undertaken to address unexplored patterns of
behavior for internationalization and the slipstream it has brought along too (Deng,
2013). Not surprisingly robust impact in history on the Economic Centre for Gravity (ECG) with a rapid shift of
it towards the Pacific countries (Tonby et al., 2019). Since the beginning of the new
millennium, the distribution of wealth and power in the international system has
transitioned from the West to the East (Hsiung, 2008), in coincidence with the crisis of
the financialization of the U.S. economy and the surge of Asian and Middle Eastern
sovereign wealth funds (Chan et al., 2008). A globalizing world has equipped emerging
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markets to seize new opportunities and catch up with developed countries, unlock their
potential and emerge as credible challengers of the established economic and political
status quo. The Chinese socio-economic changes and gradual political adjustments are
sensors to prepare the country to a new era while advanced industrial economies face a
new globalization dynamic in which a rising China is playing at the forefront (Van
Agtmael, 2008). As Mathews points out, Chinese MNCs are perfectly adapted to a
globalized world because are trying to imitate their success, the newcomers and latecomers see the world as full of
resources to be tapped . The positive vision to enter in proficient businesses has given
Chinese investors the opportunity to hunt the long-awaited balance between efficient
government support and entrepreneurial freedom necessary to compete in an
international business context. In these regards, the first chapter delves into the
conditions and reasons that incentivized the spectacular surge in Chinese OFDI in
recent times taking into consideration the strategic motives of Chinese firms in
conducting these investments.
1.1. From the aftermath of the WWI - : Chinese OFDI
trajectory
Looking back at history, entrepreneurs with an international mindset struggled to
lean out the global business environment in China in the aftermath of WWII due to a
hard political resistance initiated by the Chinese leader Mao to open borders for capital
investments (Keith, 1983). Both inward and outward FDI - intended as financial
investments involving long-term relationships and reflecting a lasting interest and
control by a firm in an enterprise resident in a foreign country - were substantially
inexistant (UNCTAD, 2005). In other words, self-reliance was the key word for the
development exclusively with thriving Japanese companies.
First signals towards the tolerance of international investment flows appeared in
China after several years of intensive international trade relations between the nation
and Western countries. This lag of a solid international investment base formation was
mostly determined by the high level of cultural distance with majority of the countries
involved in FDI activities and their relatively strong skepticism to establish long lasting
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