Academic journal article The Journal of Social, Political, and Economic Studies

An Analysis of Chinese Outward Foreign Direct Investment in Emerging and Developing Countries: Implications for Pakistan under CPEC

Academic journal article The Journal of Social, Political, and Economic Studies

An Analysis of Chinese Outward Foreign Direct Investment in Emerging and Developing Countries: Implications for Pakistan under CPEC

Article excerpt

1. Introduction

Research focused on international business suggests that firms develop and foster international operations with the goal of developing a set of competitive advantages which provide them with better returns and cover the additional costs and risks associated with international expansion as compared to domestic operations (Caves, 1971; Buckley & Ghauri, 1999, and Ozawa, 1992). Dunning (1981; 2001) suggested that international expansion offers countries various advantages, including ownership, location, and internalization. When determining where to invest internationally, countries with outward foreign direct investment (OFDI) programs consider the location of potential investments using three general objectives: (a) foreign market-seeking FDI, (b) efficiency seeking FDI, and (c) resource seeking FDI (Dunning, 1993). As liberalization, deregulation, and privatization was introduced across many developing and emerging regions, including Africa, East, and South Asia and Latin America in 1991 (World Bank, 2005), investors in every country sought to explore overseas investment opportunities, which would enable them to create competitive advantages from the available resources in their countries. OFDI is considered an important catalyst for developed countries to explore new business opportunities in other countries. Over time, rapid industrialization, technological advancement, and increasingly open market access made countries more competitive; therefore, both developed and developing countries are investing overseas in order to generate cost advantages and leverage the available abundant resources.

Like other countries, China has explored the international market in the wake of government liberalization, technological advancement, foreign capital, and expertise in management through its open door policy introduced in 1979. China's international exploration increased over a period of time, as a result of which the process encouraged increasing overseas investment by Chinese firms; this focus on overseas investment became an integral part of their strategy for economic development (Zuo, 1998). Globally, China has now become an important participant in OFDI; however, prior to 2004, its participation was relatively modest.

According to the World Investment Report (2016), China is the third largest overseas investor in the world following the United States and Japan. China is the single largest contributor of outward investment in developing countries. Historically, China has increased its investments significantly in both developed and developing economies. China views its investment in developing markets as a critical component of its foreign direct investment policy and seeks to invest in countries that have abundant natural resources or are in need of infrastructure development. Based upon China's influence on emerging market economies, it is of great interest to identify the factors that cause Chinese OFDI in these countries. Prior literature and reports by UNCTAD/World Bank emphasized that China is one of the main contributors of foreign investment. They evaluated potential investment opportunities in all the emerging and developing markets. There has been an upward surge in FDI by China, which has had a noticeable impact on the international markets.

The purpose of the study is to analyze the Chinese OFDI in African, Asian, and Latin American countries during the period lasting from 2009 to 2014. This study also examines the determinants that affect Chinese OFDI in developing and emerging countries. On the basis of the results, the purpose of the study is to create a linkage to Chinese investment under the China-Pakistan Economic Corridor (CPEC) project in Pakistan. The agreements under CPEC were signed on 20 April 2015 to undertake infrastructural projects such highway, roads, railways and develop energy related projects in Pakistan. The estimated cost of this project is $57 billion. …

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