An Empirical Study On Determinants Of Chinese OFDI In Africa

This thesis uses data from various sources to attempt an empirical study on the determinants of China's outward foreign direct investment(OFDI)in Africa.As China's economy has achieved great success in the decades since it first opened up in 1978,now,with its ambition of "going out",China has implemented a series of policies to encourage its companies to invest abroad.This includes its recently strategic plan of the "New Silk Road" which links China and Europe together via land and sea,crossing Asia on the land route and Africa on the sea route.The policy is aimed at directing Chinese companies to invest abroad and explore new opportunities just as Western companies did in China in the past.Many African countries have been targeted as China's foreign direct investment(FDI)destination countries,and have received large amounts of money.In 2005,total Chinese FDI to Africa stood at only $ 390 million;by the end of 2013,this number had already increased to $ 3.37 billion,and FDI stock had already reached $ 26.19 billion,accounting for 4%of China's total OFDI stock.Chinese FDI in Africa is spread across 49 countries and regions.Throughout the growth of China's African investment boom,the Western media has never stopped criticizing China's real motives in Africa.It is most commonly claimed that the underlying motive for China's investments is actually the exploitation of the continent's rich natural resources.The accuracy of such claims is disputed,however.The investment structures of Chinese FDI companies and industries,as well as China's FDI policies,are constantly changing.Current FDI projects are no longer limited to simply building railways and roads,but also contain a number of investments in high technology areas including tele-communications,financial services,and research facilities.Furthermore,China's recent strategic moves in Asia and Europe are likely to change the overall importance that the country places on African raw materials.It is therefore one of the objectives of this thesis to find out China's true motive(s)in Africa.The empirical results suggest that mineral resources of African countries are positively related to Chinese OFDI,whereas crude oil is not one of China's interests.In the empirical part,altogether twenty countries are examined during the period from 2007 to 2013.Using the cross-sectional data analysis model and panel data analysis models,eight statistically significant variables were identified.The paper concludes that,1)China tends to invest in African countries with less infrastructure maturity and lower educational levels;2)China is largely a risk-taking country when it comes to host countries' exchange rate stability,contract violation,profits repatriation and payment delay;3)Chinese foreign policy is driven by economic incentives;4)There is a correlation between FDI and trade openness;5)China is a resource exploiting country in terms of mineral products.Based on the above results,the paper offers the following five suggestions:1)China should improve its investment structure to include more technology oriented projects;2)Chinese businesses need to improve the way they operate abroad in terms of localization;3)Chinese companies should play it safe and focus more on long-term investments,not on short-term profits;4)China should separate its foreign policies from its FDI investments;5)The Chinese government should learn how to better deal with the Western media and clearly explain its true motives in Africa,which requires more transparency and communication.