The Analysis Of Institution Affecting The Location Choice Of Chinese Foreign Direct Investment

Since our government has put forward the "going out strategy", more and more Chinese enterprises joined the wave of foreign direct investment. So the problem about the location choice of Chinese foreign direct investment becomes a hottest topic. But at present all of the main theory of international direct investment is concerned on the multinational corporations of developed countries. Even the later popular theory of international direct investment based on developing countries just can partially explain the FDI among developing countries, which can not explain the FDI from the developing countries to developed countries. After reading the latest domestic and foreign literatures about the institution affecting the location choice of foreign direct investment, the paper found that the foreign researches in this area are more mature than the domestic’s, however, which are mainly concerned about the location choice of multinational corporations of developed countries. And the domestic researches still focus on the environmental and economic factors of host countries. Some of them begin to make research from the perspective of institution, but the number is small.So the paper is concerned about how the host countries’institution affects the location choice of Chinese foreign direct investment. But different from previous studies, the paper is based on the motivation of Chinese Foreign Direct Investment. More guidance is hoped to be given after this work.At first, the paper makes an analysis about the status of location choice of Chinese foreign direct investment, and then founds the characteristics. One of the significant characteristic is that Chinese enterprises mainly concentrated in a few countries or regions, such as some developing countries around China and the United States, Japan, Germany, France and other developed countries. Also the paper found some exiting problems in location choice of Chinese FDI, such as ignoring the host country’s institutional factors. After analyzing all of this, the paper found out three main motivation of Chinese FDI:natural resource-seeking, market-seeking and strategic asset-seeking. It is real that the diversified motivation of Chinese FDI decides the diversified location choice of Chinese FDI. Chinese enterprises with natural resource-seeking motivation mainly concentrated in Africa and resource-rich developing countries of Asia. Those with market-seeking motivation mainly concentrated in China’s neighboring countries. And those with strategic asset-seeking motivation mainly located in the western developed countries. Because the western developed countries are rich in basic research resources, high-quality talent, highly liquid information markets and so on.Based on the above-mentioned reasons, the paper took55countries which China has invested in from2003to2009as sample, and then made research about how the host countries’institution affects the location choice of Chinese foreign direct investment from four aspects:economic system, legal system, the institution affecting Enterprise operating convenience, and the informal system. Through the whole analysis, the paper found that most of the explanatory variables passed the significant test, but still some of them are conflicted with this hypothesis. And also it is found that the Corruption gap between the host countries and China is a U-shaped curve. To overcome the shortcomings and deficiencies of the whole analysis, the paper made a classification analysis based on three indicators, such as resource endowments, market size, and technology index through soft spss. The paper has drawn the following conclusion:firstly, the freedom of fiscal policy and the bilateral investment agreements between the Host County and China are important factors. Secondly, Chinese enterprises don’t pay more attention the degree of liberalization of financial markets in host country when they choose the location of FDI, which is result from the limited financial founding and the imperfect financial market of China. Finally, comparing with the other two kinds of countries, China mostly do not attach importance to institutional factors of the first kind of countries which are developing countries with abundant natural resource.Finally, the paper put forward relevant proposals to Chinese enterprises and Chinese government respectively according to theoretical analysis, empirical results and existing problems. For Chinese enterprises, they should adopt Localization Management Strategy, build raw material supply chain and market network in the local, promote local development of relevant industries and increase the employment of host countries. And for Chinese government, they should strengthen coordination and cooperation between various departments, improve the structure of China’s capital market, and provide a strong backing for Chinese foreign direct investment.