The Motivations Of China's Manufacturing Outward Foreign Direct Investment

As the world's largest manufacturing economy,China has witnessed significant growth in outward foreign direct investment(OFDI)in manufacturing by Chinese multinational enterprises(MNEs).Through 2005 to 2014,the stock of manufacturing OFDI increased from $57.5 billion to $523.52 billion,with a compound annual growth rate of some 28%.The Chinese manufacturing OFDI has its distinct characteristics in geographical distribution and industrial distribution.On the one hand,the manufacturing OFDI mainly distributed in developed countries like the U.S.,rather than developing countries.On the other hand,the manufacturing OFDI concentrated on high R&D intensity industries,especially equipment manufacturing industries.The fast growth of manufacturing OFDI owed much to the development of Chinese manufacturing.Since reforming and opening,Chinese manufacturing sector has gradually developed into independent and complete manufacturing system.And China's manufacturing output,which surpassed America's in 2010,is the largest in the world.The development of Chinese manufacturing,however,is also confronted with many challenges.Firstly,under the new normal state,industrial overcapacity,which was caused by extensive economic growth mode,is serious in some manufacturing sectors.More and more Chinese MNEs turn to invest overseas to resolve the overcapacity problem.Secondly,large but not yet strong,low value-added ratio and low resource utilization,these problems force Chinese MNEs to improve technology innovation.Thirdly,as manufacturing labour costs rise rapidly and demographic dividend starts to disappear,Chinese MNEs have incentives to undertake international industrial transfer to reduce product costs.Finally,the release of"Made in China 2025",which aims to transform China from a manufacturing giant into a world manufacturing power,highlights the importance of manufacturing sectors in the national economy.Internationalizing manufacturing is one of the strategic tasks,and this target cannot achieve without Chinese MNEs " going global".What are the motivations that drive Chinese MNEs to invest overseas?And compared with the motivations revealed by the country-level data,will it be different from the industry-level data?This paper try to answer these questions,and the structures are as following:Firstly,chapter II is about the foreign direct investment theories,especially the theories suitable to developing countries.And this part also contains an explanation about the application of these theories in this paper.Secondly,chapter III tells the trends,regional and industrial distribution of the Chinese manufacturing OFDI,as well as the pressure facing the Chinese manufacturing development.Generally,the stock of Chinese manufacturing OFDI rises rapidly,and the number and the value of cross-border mergers and acquisition(M&A)increases quickly.Meanwhile,there is strong coupling effect between China's manufacturing OFDI and the global economic fluctuations.Regionally,most China's overseas investment distribute in developed countries,like the United States and Germany.And the foreign direct investment in developing countries concentrate on the countries along "the Belt and Road".Industrially,high R&D intensity industries,like high-end equipment manufacturing and pharmaceuticals,are popular with Chinese MNEs.Traditional low R&D intensity industries like textiles,however,are less attractive.And given the problems and pressures of Chinese manufacturing development,Chinese MNEs may have motivations to seek for market,natural resource,efficiency and strategic-assets.Thirdly,chapter IV is the empirical part,which tries to testify the four motivations listed above.PPML(Poisson Pseudo-Maximum-Likelihood),which was proposed by Santos and Tenreyro(2006),is an attractive alternative to handle the zero stocks.In addition,country-industry fixed effects and year fixed effects are included to reduce the risk of omitted variable bias and to capture the global macroeconomic cycle,respectively.Surprisingly,Chinese manufacturing MNEs do not have resource-seeking motivations,which may be caused by the using of manufacturing industry-level data.What's more,except for efficiency-seeking motivations,the empirical results and robustness check confirm that Chinese MNEs do have the three other motivations.Finally,the chapter V is the conclusion part.According to the conclusions above,this literature offers some feasible suggestions for the policy makers and enterprise managers.Compared with the present literature,there are three contributions:First,this paper uses firm level data from Orbis database,which includes location,ownership,and detailed industry information for the subsidiaries of the global MNEs.And this dataset enables us to picture a much more comprehensive picture of the Chinese MNEs OFDI activity.Second,this paper tries to reflect the motivations of Chinese MNEs from the perspective of factor endowment.Third,PPML is used to handle the zero stocks,which are eliminated in the log function,to keep the results unbiased and consistent.