A Study On The Effects Of Host Country Financial Developments On Overseas Investments Of Chinese Enterprises

The report of the 19th National Congress of the Communist Party of China(NPC)pointed out:"We should take the construction of the "One Belt and One Road" as the focal point",stick to the principle of cooperation,follow the principle of jointly building and sharing,strengthen openness and cooperation in innovation,and forming a new open pattern."In terms of going global,the flow of OFDI(Outward Foreign Direct Investment)has shown a remarkable growth.It has not only gradually become an important part of China's economy,but also an important factor affecting China's economic development.Studying what financial factors have a significant impact on Chinese OFDI will have practical significance for promoting the sustainable and healthy development of OFDI enterprises in overseas countries.In addition to traditional factors such as market size,barriers to entry,natural resources,institutional quality,geographical distance and cultural differences,the financial market in financial development is incomplete and financing issues have become widely discussed and concerned by Chinese society and academia in recent years.The level of financial development of the host country constitutes an important external environment for the production and operation of multinational enterprises.It affects not only the degree of competition in the host country market and the difficulty of entry,but also the costs,risks and values of non-operation.As an important carrier of economic globalization,the success or failure of transnational enterprises operating overseas has affected the economy of their home countries through various channels.Therefore,as a host country's financial development and financing environment that may affect the value of Chinese foreign direct investment and investment returns,it deserves our attention and research in relative issues.Although the research on the influence of financial development on the OFDI in the host country has been studied in western developed countries,as a new emerging country Chin,there has not been any systematic analysis in this respect.The following problems are mainly to be explored.First,how the financial development of the host country affects the structure of the Chinese enterprises' OFDI,that is,how they effect on the margins of OFDI;secondly,considering the financial development of the host country,What kind of enterprises carry out OFDI,that is,the influence of the financial development on the distribution of the OFDI firms' productivity;thirdly,what are the channels that the host country's financial development affects the Chinese OFDI and if the channels of influence is different;Fourth,under the background of financial globalization,how the capital controls of the host countries affect the outward direct investment of Chinese enterprises.The findings of this study are the following ones.First,the impact of host country financial development exerts asymmetrical impacts on the dimensions of Chinese OFDI.Whether in terms of Credit to Private Sectors or the quality of the financial laws and regulations as a measure of financial development in the host country,or from the perspective of capital controls,higher level of financial development in the host country will increase the probability and quantity of OFDI by Chinese enterprises,that is,host country financial development can promote China's OFDI in the dimension of extensive margins.However,the positive effects of the host country financial development on intensive margins are mainly found on the aggregate scale of OFDI,not on the sector average scale of OFDI projects.Second,host country financial development will systematically lower productivities required for Chinese enterprises to carry out OFDI?Nevertheless,the minimum productivity threshold for entering markets with high economic development is always higher than that with less economic development.Third,host country financial development can exert financial effects to promote Chinese OFDI,but to what degree the financial effects work differs across countries.(1)financial development in high-income countries has a significant role in promoting OFDI by Chinese enterprises,but this is not mainly due to the financial effects.However,financial development in non-high-income countries has significant financing effects.(2)In the host countries whose income is lower than the high-income standard set by the World Bank,but higher than China's GDP per capita,financial development has significant financing effects,but produces more significant competition effects.The case in host countries with lower GDP per capita than China is contrary,that is,the financial effects are much more significant.(3)Except higher trade openness,the larger the market size,the richer the natural resource endowments and the more activeness of innovation in host countries,the more attractive financial development become to investment activities.This is especially the case in high-income countries.(4)the financial effects of host country financial development can promote Chinese OFDI in the dimension of extensive margins.In the intensive margins financial effects are not significant.Fourth,the impacts of host country capital controls on Chinese enterprises' OFDI are as following aspects.(1)The relaxation of capital controls by the host country will significantly promote the OFDI of Chinese enterprises in the extensive margins,but has no significant promotion effect in the intensive margins.(2)The test based on sector external financing dependence shows that relaxing capital controls in the host country will have financial effect,reducing the cost of capital and promoting OFDI.(3)The effects of capital controls on OFDI activities is intervened by other factors.In particular,the higher institutional quality and the larger credit scale can generate a better external environment for investment activities and guarantee the positive effects of capital controls relaxation on OFDI.The findings of this study show that host country financial development promote Chinese enterprises OFDI mainly by promoting their financing in the host country.The improvement of financial development in the host country can improve the structure of Chinese OFDI by enabling more enterprises to invest abroad so as to spread risks by diversification across sectors and enterprises.In addition,the heterogeneity of financial development impacts across countries is another imgredients for OFDI location dicision.The study is also meaningful for policy makers as it is the basis for them to provide more targeted service and support OFDI according to host country financial development.Marginal contribution of this study can be summarized as following.First,in the perspective of the object,this research focues on studying the multinational activities of Chinese enterprises from the angle of host country financial heterogeneity,which is totally different from the works that mainly concerned enterprises of developed countries or the whole world.It is necessary to do so,as China is the largest developing economy in the world and her special national conditions and economic development make her Foreign Direct Investment activities different from those of developed countries and other developing countries.Second,theoretically,a few works have studied whether host country financial development promoted or hindered Chinese OFDI,but did not show how the impact differs in dimensions and what are channels the host country financial development works Chinese OFDI.In this paper,both the impacts and the channels are tested from the view of the extension margins and the intensive margins.The influence of host country financial development on productivity distribution of OFDI enterprises are also studied.This paper also examines the impact of host corntry capital controls from two aspects:their impacts on OFDI and the channels they work,as capital controls as an important part of the financial system,but few studies have been conducted on their influence on Chinese OFDI.Third,from the perspective of the data,this paper is the first to match Chinese listed companies in Zero2IPO Foreign Direct Investment Database and CSMAR Database from 2008 to 2015.The data is more updated and a better reflection of Chinese OFDI after the 2008 global financial crises than the OFDI data and industrial data from the Ministry of Commerce and Chinese Industry Business Performance Data from 2001 to 2006,respectively.