The institutional perspective on outward foreign direct investment from China : the relationship between the government and firms

• Main Author: Cheng, Qian
• Published: University of Nottingham 2012
• Subjects: 332.67351; HF Commerce
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.582001

China's outward foreign direct investment (OFDI) has increased considerably in the last few decades. The development of China's OFDI has distinct features, in particular the fact that the major investors undertaking large-scale deals are state-owned enterprises. However, they have few competitive advantages compared with their international counterparts. As mainstream theories have difficulty in providing a reasonable explanation of China's OFDI, this thesis analyses the Chinese government's home country measures (HCMs) and their effects on OFDI, contributing to the understanding of the institutional analysis in international business. Based on the analyses of26 key policies and regulations, the Chinese government's role as a supervisor to examine and approve OFDI activities is addressed, as well its role as a promoter to support the Chinese enterprises' investment in the international economy. Regarding the administration, regulations for examining and approving the OFDI projects have been relaxed, which supports the improvement of OFDI. However, the outcomes of post-investment monitoring and extraterritorial controls are under question. The Chinese government supports OFDI largely by means of special funds and preferential loans issued by the institutions and banks. Additionally, China's OFDI information system primarily functions to provide data and information for policy formulation and complement the financial support. Employing data of 50 largest Chinese business groups ranked by overseas assets, their overseas subsidiaries and cross-border mergers and acquisitions, it is understood that their motivation for undertaking OFDI is to address their competitive disadvantages rather than to exploit their competitive advantages. The case studies of Chinalco's investment in Rio Tinto and Geely's acquisition of Volvo provide insights into the relationship between the Chinese government and investors. Rather than fully compromising the government's national planning, the Chinese enterprises take their corporate interests as priority during the OFDI progress. Accordingly, it can be concluded that the convergence between the nation and the enterprises' interests rather than the institutional factor alone has contributed to China's OFDI.