The Determinants and Motivations of China's Outward Foreign Direct Investment: A Spatial Gravity Model Approach

Shun-Chiao Chang

Global Economic Review, 2014, vol. 43, issue 3, 244-268

Abstract: The study attempts to investigate the features and determinants of China's outward foreign direct investment (OFDI) into 138 countries and Chinese firms' investment strategies over the 2003-2009 period using an augmented gravity model with spatial linkages. The respective evaluations of China's OFDI are indicative of the important role played by non-financial OFDI. At the same time, Chinese firms prefer to invest in high-tech industries in developed countries while also focusing on the extraction of natural resources around the world. The empirical findings show that the host country's economic size has a significantly positive effect in terms of promoting Chinese OFDI. Chinese firms favour a complex-vertical platform in the developed countries while they prefer a market potential foreign direct investment (FDI) surrounding the host developing countries and an export-platform FDI in the petroleum exporting countries based on the surrounding market potential effect and spatial effect. The fuel extraction motive plays a key role in China's OFDI in line with the realities of Chinese FDI strategies in recent years.

Date: 2014
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DOI: 10.1080/1226508X.2014.930670

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