Is China's Outward FDI Politically Driven?

Abstract

To capture the invisible political considerations underlying China's outward foreign direct investment in the new millennium, this study embeds a new component - the bilateral diplomatic relationship, into the traditional FDI empirical framework. Rigorous evidence unveils the fact that Chinese government is influential not only in encouraging, but also in shaping China's outbound investments through directing the investments to countries having more friendly diplomatic relationship with the country. Meanwhile, market-access and resource-seeking motives are proved to be strong drivers as well. These empirical results support the economic diplomacy argument that the new type of diplomacy under current context of globalization, no longer fully relies on political considerations, but also takes country's economic benefits into account, as China's outward FDI tried to balance both economic and political interests.