Chinese Multinationals' Outward Foreign Direct Investment: An Institutional Perspective and the Role of the State

Abstract

In this study we provide a novel analysis on the motivations and strategies of the outward foreign direct investment (OFDI) by Chinese multinational firms under the state-centric economic development approach. Previous studies suggest that the OFDI motivations and strategies of firms from emerging economies are different from that of firms from developed economies, and mainly focus on their strategic decisions on the internationalization under firm-level advantages. In this article we present a country-level institutional perspective to describe Chinese multinational firms’ OFDI with great emphasis on the role of state. The formal institutional determinants such as state policy, administrative system and government ownership, as well as the informal institutional determinants such as state ideology and national pride derived from China’s unique state-centric approach are discussed. We argue that such formal and informal institutions have shaped Chinese multinationals’ motivations of pursuing political objectives, enhancing global competence and escaping from domestic institutional constraints in pursuit of investing overseas. We further delineate how these institutional environments and motivations result in Chinese multinationals’ peculiar strategic choice in the OFDI entry mode, geographical distribution and target industry.

Keywords: outward foreign direct investment, state-centric economic development approach, the role of state, formal and informal institutions

JEL Classification: F23, G38, O17