Foreign Direct Investment from China: Sense and Sensibility

Angela Huyue Zhang

King's College London – The Dickson Poon School of Law

August 1, 2013

34 Nw. J. Int'l L. & Bus. 395 (2014)

Inspired by psychological studies on human judgment, this article represents the first attempt to provide a systematic account of how various heuristics and cognitive biases can influence public perception as well as regulatory response to foreign direct investment. In particular, it catalogues the main social and cognitive mechanisms through which various well-organized interest groups can exploit public fear of foreign direct investment from China. By closely studying two cases — the U.S. Congress’ hostile response to CNOOC’s attempted acquisition of Unocal and the European Commission’s increased antitrust scrutiny of Chinese state-owned enterprises’ acquisitions in Europe — this article shows how fear of Chinese investment can lead to counterproductive regulatory response. Contrary to the popular perception that Chinese state-owned enterprises are mere puppets of the government, the article draws attention to the pervasive but neglected agency problems that have powered the surge of Chinese outward investment. It calls for more effortful thinking by western policymakers and cautions against extreme precautionary measures for investment from China. At the same time, however, it questions the wisdom of overseas investment by Chinese state-owned enterprises. Empire building incentives, exacerbated by weak corporate governance structures and the lack of financial disclosure, make it highly likely that state assets are squandered in overseas acquisitions.

Number of Pages in PDF File: 60

Keywords: FDI, heuristics, bias, behavioral economics, public choice, China, SOEs, outbound M&A, globalization, economic integration

JEL Classification: F02, F21, G31, K21, L44, P26, P31, K00

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Date posted: August 8, 2013 ; Last revised: December 7, 2014

Suggested Citation

Zhang, Angela Huyue, Foreign Direct Investment from China: Sense and Sensibility (August 1, 2013). 34 Nw. J. Int'l L. & Bus. 395 (2014). Available at SSRN: http://ssrn.com/abstract=2307617 or http://dx.doi.org/10.2139/ssrn.2307617

Contact Information

Angela Huyue Zhang (Contact Author)
King's College London – The Dickson Poon School of Law ( email )
Somerset House East Wing
London, WC2R 2LS
United Kingdom

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