Research On Country Risk Of China's Outward Foreign Direct Investment

With the promotion of China's "The Belt and Road Initiative",the Outward Foreign Direct Investment(OFDI)activities of Chinese enterprises have become increasingly popularized and diversified.The World Investment Report 2017 released by the United Nations Conference on Trade and Development(UNCTAD)shows that China has become the second largest investor in the world second only to the United States,The China Global Investment Tracker(CGIT)shows that the total China's foreign direct investment in 2016 reached a record high of 183 billion U.S.dollars.With the rapid growth of OFDI,Chinese overseas investment companies have also increasingly encountered various investment risks.For more than a decade,the number of projects that China's OFDI failed has totaled US $245.9 billion.There are many reasons leading to the failure of China's OFDI.One of the important reasons is that it has not accurately identified and effectively responded to the host country's risks.From a theoretical perspective,many traditional theories equate country risk with sovereign credit risk or political risk.Although this is a host country risk analysis from the national level,its connotation is too small to cover all the risk factors that affect OFDI.From a practical perspective,many well-known sovereign risk rating institutions in the world will regularly or irregularly publish the results of country risk ratings,which will have extensive influence on investors around the world.However,in addition to focusing on sovereign risk,the assessment models of these institutions are used by global investors,especially the investors who invest indirectly.They cannot accurately reflect the real investment and business environment of multinational companies,and they do not reveal the "Chinese characteristics" of China's OFDI.This is an important factor at national level in the bilateral relationship between China and the host country.Some studies have begun to try to include the host country's relations with China in the risk of OFDI.However,the explanation of influence and mechanism for country risk of China's OFDI remains weak,due to the limitations of indicators,samples,methods and so on.In view of the above issues,this paper focuses on the following three aspects:Firstly,the risk factors of China's OFDI as a host country are identified on the basis of theoretical analysis and literature review.The factors that may affect the uncertainties of Chinese investment companies from the macro level of the host countries,including political,economic,social,and host country relations with China,are incorporated into the country risk assessment model of OFDI.Besides,this paper analyzes the origin and formation mechanism of China's OFDI risk from levels of home country,host country and multinational corporations.Secondly,it constructs a country risk assessment model of China's OFDI that includes 4 first-level indicators and 40 second-level indicators,and takes the dynamic panel data of 104 countries from 2003 to 2015 as a sample to analyze the country risk of China's OFDI.BP neural network is used to construct warning model of China's OFDI country risk and predict the country risk of the sample countries.Thirdly,the impact of country risk on China's OFDI is empirically tested with the panel data of country risk and its 4 sub-risk measured in this paper as well as the China's OFDI data of 104 countries from 2003 to 2015.A panel threshold model is adopted for the further discussion.Finally,coping strategies for country risk of China's OFDI was proposed both from the national level and the corporate level.The main findings of the research:(1)The contribution of relationship risk with China and political risk of the host country risk assessment index are relatively more important than others,from the perspective of valuation results of index weights.In addition,they both are important factors of the country risk of China's OFDI.(2)The regional distribution of the country risk is uneven,and the country risk is in descending order from Africa to Asia,South America,North America,Europe,and Oceania.The country risks of China's OFDI in Africa and Asia are relatively prominent.(3)The host country's risk is negatively related to the country's development level.The risk level of low-income countries is generally higher than that of high-income countries.(4)The empirical results show that the political risk has the most significant hindrance on China's OFDI,while the impact of social risk is not significant.(5)There are threshold effects of country risk on China's OFDI based on urban level,the level of development of the financial industry,and human capital level.The impact of the host country's country risk on China's OFDI is a non-linear relationship based on the level of urbanization.As the level of urbanization increases,the country's risk will hinder China's OFDI.With the continuous improvement of the level of financial development,the effect of country risk on China's OFDI has been continuously strengthened.However,with the continuous rise of human capital,the effect of country risk on China's OFDI is declining.The innovations of the research:(1)This paper incorporates the bilateral relationship between the host country and China into the analytical framework of host country risk based on the original analysis of China's OFDI host country risk.It identifies the host country risk factors and constructs the country risk index system of China's OFDI.(2)The risk measurement model of the country and the early warning model of China's OFDI are constructed according to the formation mechanism of host country risk.In addition,the country risk of the sample country was quantified and forecasted.(3)This paper constructs a panel threshold model,which reveals the mechanism of influence of country risk of China's OFDI.It argues that there is a threshold effect based on the urban level,the level of development of the financial industry,and human capital level.