Evaluation And Enfluencing Factors Of Political Risk Of Outward Foreign Direct Investment

By the end of 2017,China’s outward FDI stock was 1809.04 billion US dollars.China’s outward FDI stock has risen to the second largest in the world,accounting for5.9% of the global outward FDI stock.It is distributed in 189 countries and regions,and its growth rate has remained above 10% for many years.With the rapid growth of overseas investment,foreign investment will become a new engine of economic growth.How to effectively and cheaply protect China’s overseas interests has become a topic of academic concern.However,due to the late start of Chinese enterprises’ outward foreign direct investment,enterprises encounter various external risks,resulting in heavy losses,especially the political risk of the host country is the most destructive and influential.At present,most of the domestic and foreign research focuses on the case study of China’s outward FDI.It is impossible to know the whole picture,that is,the measurement of the political risk of China’s outward FDI as a whole.Is the political risk of China’s outward FDI much higher than that of other countries in the world?Firstly,this paper constructs the political risk index of Chinese enterprises’ outward foreign direct investment by combing the literature of political risk of outward foreign direct investment at home and abroad,which has certain reference significance and reference value for Chinese enterprises’ research on how to evaluate the risk of outward foreign investment,how to choose the target market reasonably and how to make rational outward foreign investment.Secondly,through the analysis of the location choice of FDI,this paper holds that different ownership systems have different responses to external institutional factors,which provides a useful reference for the study of the behavior of FDI by Chinese multinational enterprises.Thirdly,this paper also enriches the institutional theory by analyzing the relationship between the institutional factors of the host country and the location decision-making of outward FDI.Finally,this paper argues that even if the main investors come from the same country,they may face different risks in the host country because of their own characteristics,which is of great theoretical significance to the study of political risks.The innovation of this paper is mainly embodied in three aspects:(1)combining with the political risk index of outward foreign direct investment and the data of China’s outward foreign direct investment,the paper establishes the political riskindex of China’s outward foreign direct investment;(2)puts forward the regulating effect of enterprise ownership on the political risk of China’s outward foreign direct investment;(3)establishes the the control mechanism of foreign aid to the political risk of enterprises’ outward foreign direct investment.The research contents of this paper include the following eight aspects:Firstly,the background and significance of this study are elaborated.This paper introduces the background and significance of the research,defines the research content,research methods and related concepts,and introduces the research ideas,research methods and main innovations.Secondly,it reviews and summarizes the relevant literature in the field of outward foreign direct investment and political risk.This paper systematically reviews and combs the relevant literature from the perspective of economic factors,political factors,home country factors and political risk indicators of OFDI,which provides a solid foundation for the follow-up study.Thirdly,the relevant theories and main analysis models involved in the study are elaborated.Relevant theories include comparative advantage theory,market internalization theory,product life cycle direct investment theory,international production compromise theory,foreign disadvantage theory and institutional economics theory.The main analysis models include principal component analysis model,conditional logistic regression model and structural equation model.Fourthly,it combs the concepts of national risk and political risk involved in the study,defines the connotation of political risk and puts forward its evaluation methods.Fifthly,using the principal component analysis method,this paper constructs the index of political risk of China’s outward FDI,which can be used to evaluate the overall political risk of Chinese enterprises’ outward FDI from 2003 to 2017,compares153 countries in the world,and makes a detailed analysis of the ranking of political risk in the world,so as to provide a data-based reference for China to formulate its outward investment policy.Empirical analysis shows that China’s investment in high-risk countries is not high,and Chinese enterprises are political risk averters in outward foreign direct investment.Specifically,from 2003 to 2006,China’s outward FDI has a high political risk and a large gap with other countries in the world.However,after accumulating certain investment experience,China began to attach importance to political risks and transfer investment to low-risk countries.Comparedwith other countries in the world,China has narrowed the gap,and by 2009 it has basically been on the same level with the international community.However,after the global financial crisis in 2009,compared with other countries in the world,China’s political risk of outward FDI is still high and the gap remains basically stable.Sixthly,this paper studies how different ownership systems affect political risks and the location choice of Chinese multinational enterprises.There are many factors affecting the political risk of outward foreign direct investment of a country’s enterprises,including enterprise level,industry level,policy level and international level.The heterogeneity of enterprises’ resources and capability endowments will affect their ability to cope with the political risks of overseas host countries.State-owned enterprises always occupy a major share in the stock of China’s outward direct investment.Therefore,this paper focuses on the role of the typical heterogeneity of enterprise ownership structure on the political risks of outward direct investment and the location choice of Chinese multinational enterprises.Aiming at the phenomenon that the political risk of Chinese enterprises’ outward FDI is higher than the average level of other countries in the world,this paper focuses on the ownership structure of enterprises,uses the decision-making data of 186 Chinese foreign direct investment companies distributed in 93 countries,and concludes that the state-owned companies treat the political risk in an unconventional way,and that the state-owned enterprises dare to bear a higher political wind in outward FDI.Insurance.State-owned enterprises prefer countries with high political risk in their outward foreign investment.At the same time,the government’s support makes these state-owned enterprises pay little attention to their own and other enterprises’ past experience in the host country.Seventhly,it analyses the control mechanism of foreign aid to the political risk of enterprises’ outward foreign direct investment.By using structural equation,the political risks of 145 sample countries from 2003 to 2017 are discussed,and the effects of Chinese and American foreign aid on the political risks and outward FDI of all countries in the world are verified,that is to say,both can reduce the political risks of transnational direct investment.The contribution of American foreign aid to Chinese enterprises’ transnational direct investment is relatively low,only half of the contribution to other countries’ transnational enterprises.Comparatively speaking,the contribution rate of Chinese foreign aid to Chinese enterprises’ overseas outward direct investment is more than seven times that of other countries’ enterprises.Chineseforeign aid can better pave the way for Chinese enterprises to "go out".China’s foreign aid is not only conducive to consolidating bilateral political relations between the investing country and the host country,but also can make immediate insight into the changes in the political and economic situation of the recipient country through the audit of the foreign aid implementation plan,thus playing a safeguard role for enterprises’ foreign direct investment.By means of foreign aid and bilateral investment agreements,the Chinese government controls the political risks of Chinese enterprises’ outward foreign direct investment.Eighthly,the paper summarizes the conclusions and puts forward policy recommendations.On the basis of summarizing the full text,this paper puts forward some suggestions and reflections from the perspectives of government and enterprises.Government: firstly,the government can establish good political relations,vigorously develop the "belt and road" initiative and strengthen intergovernmental cooperation to reduce political risks.Secondly,the government actively signed bilateral or multilateral investment protection agreements,so that the two sides can maintain a more stable relationship in the future,enterprises can avoid political risks to a certain extent.Thirdly,under the leadership of the government,enterprises should be guided to participate together,and a sound risk assessment and early warning system should be established from the aspects of assessment,early warning and supervision to lay a good foundation for the sustainable development of enterprises.Fourthly,enterprises should be encouraged to develop investment in different industries and regions,prevent excessive competition among enterprises,increase cooperation among enterprises and jointly create a good investment environment.Fifthly,in order to reduce the sensitivity of state-owned enterprises and investment risk,we should make full use of PPP model in outward foreign investment.State-owned enterprises,private enterprises and foreign-funded enterprises can enter the host market in a joint venture mode.Enterprises: Firstly,before investing,enterprises should have a detailed understanding of the legal system,political risks,economic level,cultural customs and other aspects of the host country,so as to avoid blindly following the trend and make rational investment.Secondly,efforts should be made to introduce talented people who are familiar with the trade rules and laws of the host country.Thirdly,in order to avoid the political risks of the host country,enterprises should actively adopt a diversified and localized business model.Fourthly,we should properly shoulder social responsibility and pay attention to the training of talents in host countries andthe protection of the local environment.Fifthly,make full use of the main advantages of state-owned enterprises,because state-owned enterprises are more conducive to the support of the Chinese government,and state-owned enterprises generally have rich experience in foreign investment and communication with the host government.In order to control and reduce the political risk of outward FDI,the government usually carries out two kinds of economic and diplomatic actions,namely,foreign aid and investment agreements.Due to incomplete data and space constraints,this paper only analyses the relationship between foreign aid and political risk of outward FDI,and does not explore the relationship between investment agreements and political risk.In addition,cultural differences are also an important reason for the political risks of outward FDI.This paper does not discuss cultural differences.These important aspects need the author to continue to improve and supplement in the follow-up study.