Location Choice Of Chinese Commercial Banks’ OFDI

At the beginning of 21st century, complying with the trend of economic globalization and liberalization, China officially proposed the strategy of "going out" to overall improve the level of opening. China began to encourage enterprises including banks to invest in other places of the world. Against this background, China’s commercial banks start the process of OFDI to realize its sustainable development.Through decades of efforts, Chinese commercial banks have made great achievements in OFDI. By the end of 2013, Chinese commercial banks’OFDI stock has reached $70.92 billion, the number of countries and regions that overseas branches have covered has reached more than one hundred and the number is still rising. However, there are still some deficiencies during the process of Chinese commercial banks’ OFDI especially compared with huge multinational banks’. Through the analysis on the present situation of Chinese commercial bank’s foreign investment, this paper finds that current distribution of commercial banks’ overseas institutions is in imbalance, more than half of overseas institutions locate in Hong Kong and Asia-pacific regions and these institutions perform much better than others, comparatively agencies in other regions are quantitatively fewer and smaller in size. Location choice is the primary problems met by banks during the process of OFDI and it will influence the success and efficiency of OFDI, so that banks should pay more attention on this question. This paper will study the location choice of Chinese commercial banks’ OFDI and analyze the factors that influence location choices.Based on the theory of international production compromise and some emerging theories on FDI, this paper will study the forming reason of Chinese commercial banks’ unbalanced overseas distribution in three aspects:banks, home country and host country. First of all, the motivation and capacity of banks’ investment determine the location choice of bank’s foreign investment jointly. On the one hand, banks’ investment motivation determines that banks prefer countries and regions that possess appropriate resources. According to emerging theories of FDI, Chinese commercial banks own the characteristics of emerging MNCs whose competitive advantage comes from learning advanced knowledge of developed countries’ enterprise. Therefore, in addition to traditional motivations, such as customer-following and market-seeking,Chinese commercial banks are also knowledge-oriented and prefer to invest countries and regions that own international financial centers.Ability of investment decision On the other hand, banks’investment ability decides that if the banks could complete investment activities in the target area. When banks invest in the host country, they will face more risk and limitations compared with local ones. These risk and limitations are just the so-called "outsiders disadvantages", whether banks own ability to overcome the "outsiders disadvantages" has become the key factor for banks’investment in the host country. Secondly, Chinese commercial banks’foreign investment activities get support from Chinese government which is totally different from banks’investment in developed countries. Chinese commercial banks currently do not have obvious ownership advantages, and the specific advantages from home country constitute the competition advantages of Chinese commercial banks in foreign investment activities. These specific advantages play a certain guiding role in the location choice. Finally, location factors of host countries will attract or restrain foreign banks’investments. If banks own location advantages of host countries, they will face less outsiders disadvantages and pay less costs to enter foreign markets. This paper will study host countries’ location advantages in these aspects:institutional quality, regulation degree, psychological and geographical distance.To testify the mechanism of Chinese commercial banks’location choice, this paper makes an empirical test with Stata. Results show that Chinese commercial banks’OFDI is customer-oriented and knowledge-oriented at the same time. Country specific advantages promote banks’OFDI the foreign direct investment as expected and host countries’location factors such as institutional quality also affect the location choice. The imbalanced geographical distribution of overseas institutions can be attributed to the following reasons:Firstly, banks prefer to invest China’s trade and investment partners out of customer-following motivation, and considering the host factors such as geographic distance, banks’investment concentrated in Hong Kong, Macao and Taiwan,China and Asia-pacific region initially. Secondly, banks tend to invest in developed countries with international financial centers out of learning motivation, but due to the strict access regulation of developed countries’financial industry, banks’investment in Europe and the United States and other developed countries developed slowly. Finally, because of geographical distance or government regulation, banks’ investment rarely distributed in Latin America and Africa in early years, under the guidance of Chinese government, with the development of trade and investment,Chinese commercial banks gradually began the process of investment in recent years.