The Influence Of Trade Frictions On China’s Outward Direct Investment

After China’s entering WTO in 2001, the trade frictions did not reduce as a result. In the opposite, China’s trade frictions was increasing since then. Trade friction can be divided into two categories:traditional tariff and modern anti-dumping, countervailing duties, technology standards and so on. China often faces the later ones in recent years. These trade frictions are caused by the huge trade surplus and the low value-added exports.At the same time, China’s outward direct investment was increasing which was supported by government policies, which encourages direct investment in order to drive exports, acquire natural resources and bring advanced technology. Between 2002 and 2011, China’s annual outward direct investment growth rate is 44.6%, and the host countries and regions amount to 185, including both developed and developing countries.The paper uses anti-dumping index to weigh the degree and trend of China’s trade frictions. According to the total value of trade volume, the paper also uses the panel data of 60 trade partners to do the regression between China’s outward foreign direct investment and trade frictions. The result shows a positive significant relation between these two factors.Further more, the paper analyzes the relation between trade barriers and China’s outward direct investment of different modes. Based on the model of foreign direct investment by Markusen (2002), the paper divides 185 host countries and regions into three groups:high income, middle income and low income countries. By using the system GMM estimation, the regression results show that the investment to middle income countries is horizontal, which is to avoid trade barriers. In the contrary, investment to high and low income countries shows the features of horizontal investment, but due to different motivations. In addition, China’s outward investment also trends to flow into more developed countries and regions.