Outward Foreign Direct Investment of China's Banking Sector: Determinants and Motivations

Abstract

The outward Foreign Direct Investment is important for the sustainability of the banking sector’s development of China. The paper examines the location determinants of outward Foreign Direct Investment by state-owned Chinese banks during 2003-2015 with a set of negative binomial panel regression models. We find that the outward Foreign Direct Investment for the Chinese banking sector generally exhibits market-seeking, efficiency-seeking, resource-seeking motivation. The outward Foreign Direct Investment also tends to flow to countries with lower economic risks and political risk. The results are robust to various model specifications, time periods, and methodologies. We find that that current theories can largely explain the investment behaviors of Chinese banks with some necessary adjustments.

Keywords: China, banking sector, outward FDI, locational determinants

JEL Classification: F21 G21