Explaining China’s Outward FDI: An Institutional Perspective

Historic and Emergent Trends in Chinese Outward Direct Investment

“…Since the late 1970s the Chinese government has determined to a considerable degree the legal, regulatory and fi nancial framework of ODI, either directly, by administrative fi at (via the approval process and foreign exchange controls), or indirectly, using economic policy implementation and other measures (Buckley et al 2008). Moreover, as the ultimate owner of state-owned enterprises (SOEs) (which dominated Chinese ODI prior to 2003), the government (at various levels) has effectively been the key operational decision-taker in the majority of formally approved investment projects.…”

“…Moreover, as the ultimate owner of state-owned enterprises (SOEs) (which dominated Chinese ODI prior to 2003), the government (at various levels) has effectively been the key operational decision-taker in the majority of formally approved investment projects. However, policy has often been ambivalent and inconsistent, with national and sub-national government at various times supporting, pushing and constraining Chinese ODI (Buckley et al 2008). Key stages in the evolution of China's offi cial FDI approval process and some concomitant changes to the character of Chinese ODI are presented in Table 2.…”

“…Second, soft budget constraints and access to cheap capital (that is, domestic capital market imperfections) arising from high levels of state involvement in overseas projects may also have led Chinese MNEs to demonstrate a perverse attitude to risk management in comparison to industrialised country fi rms , Antkiewicz/Whalley 2006. Third, the conclusion by the Chinese government of bilateral investment treaties, double taxation agreements and other initiatives designed to build strong economic and diplomatic relations with developing countries will also have helped Chinese investors to mitigate certain aspects of investment risk in the countries concerned (Buckley et al 2008). This is especially relevant in the case of state-directed FDI that advances the political agenda of the Chinese government: for example, when it is used to develop connections with countries ideologically or politically distant from the west, for whatever reason.…”

The economic geography of offshore incorporation in tax havens and offshore financial centres: the case of Chinese MNEs

“…including offshore holding-companies that own domestic mainland subsidiaries) may benefit from specific intergovernmental agreements on taxation (Buckley et al, 2008). Firms that are incorporated in a country or region with which China has a tax treaty may benefit from reduced rates of withholding taxes levied on dividends paid to offshore holding companies.…”

Chinese multinationals and public policy

“…Compared with their counterparts from developed countries, many Chinese enterprises lack traditional FSAs in terms of proprietary technology, international brands, advanced marketing, and managerial skills; rather, their firm resources and capabilities are home country related, such as home government support, low production cost, network assets, and institutional attributes that allow Chinese firms to operate in uncertain economic and political environments (Rugman and Li, 2007;Yiu et al , 2007). Historically concentrated on greenfield and joint ventures, Chinese firms have been aggressively buying out foreign assets around the world (Buckley et al, 2008;Deng, 2009). Furthermore, FDI outflows from China, as discussed previously, tend to be guided by the Chinese government in securing natural resources and acquiring strategic assets abroad.…”