Trend and Determinants of China’s OFDI in Asia

Abstract

The fundamental objective of this paper is to show the pattern and magnitude of Chinese Foreign Direct Investment (FDI) in Asia and respond to the question: what determines the spectacular surge in Chinese FDI inflow to Asia in recent time? This study will enable the policy makers to devise and execute polices to attract further Chinese FDI in future. Based on a dataset of 37 Asian host countries, we used panel data technique to explore the determinants of Chinese outward FDI over the period 2003-2012. Our findings revealed that inflation, natural resources endowment, infrastructure, bilateral trade and openness to the trade have positive and significant impact on Chinese FDI in Asia. Political stability a key institutional variable is significant but negatively associated with FDI. This study has key policy implications.  Policy makers in Asia must formulate policies to improve economic relationship with China, provide trade incentives and remove all barriers to trade and capital movement to attract Chinese FDI. Infrastructure availability is also key to export performance and FDI inflow, therefore, countries lagging behind in quality of infrastructure must focus on its reconstruction and availability.

Keywords: Foreign Direct investment, Asia, Political stability, infrastructure