Navigating China's OFDI: Financial development and policy shifts in the EU

Jingxia Zhang, Zejiang Zhou and Yuan, Guodong (Gordon)

International Review of Economics & Finance, 2025, vol. 98, issue C

Abstract: This paper examines the impact of the financial development of the host country, the EU, on Chinese Outward Foreign Direct Investment (OFDI) to the EU. While it is assumed that financial development in the source country has a positive effect on OFDI, the impact of financial development in the host country on OFDI is not logically clear. This is because the financial development of the host country is assumed to have the effect of improving not only the financial environment for the foreign investor but also that of the domestic companies in the host country, thereby intensifying competition. Nevertheless, many previous studies have shown that the financial development of the host country has a positive effect on OFDI. In this study, we examine investment from China, which is one of the world's leading OFDI countries but has a relatively low level of economic development, to the EU, which has a relatively high level of economic development, with the aim of contributing to the advancement of research on the impact of financial development on OFDI. As a result of the study, we obtained the opposite result to previous empirical studies, that is, Chinese OFDI to the EU has a negative effect from the financial development of the EU. In order to clarify the factors, we examined the impact of the subprime mortgage crisis in 2008, China's monetary tightening policy in 2016, and the COVID-19 crisis since 2019. Further disaggregated research indicates that financial depth generally contributes to attracting investment from Chinese enterprises. The negative impact of financial development on China's OFDI in EU countries is mainly reflected in financial access and financial efficiency, particularly regarding the access and efficiency of financial institutions. Additionally, strict regulatory measures in countries with robust institutional frameworks may escalate costs for foreign enterprises. These results clarify the peculiarities of Chinese direct investment in terms of the impact of financial development on direct investment.

Keywords: Financial development; Financial markets; Financial institutions; EU; China (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056025000334
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:98:y:2025:i:c:s1059056025000334

DOI: 10.1016/j.iref.2025.103870

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().