Chinese firms undertake large scale contracted projects in a number of countries under the auspices of economic cooperation. While there are suggestions that these activities are an extension of China's soft power aimed at facilitating Chinese foreign direct investment (FDI) in those countries, often for access to natural resources, there is no systematic analysis of this in the literature. In this paper, we examine China's economic cooperation related investment (ECI) over time. Our results suggest that the pattern of investment is indeed explained well by factors that are used in the stylised literature to explain directional patterns of outward FDI. They also demonstrate that the (positive) relationship between Chinese ECI and the recipient countries' natural resource richness is not economically meaningful. Finally, while there is some support for the popular wisdom that China is willing to do business with countries with weak political rights, the evidence suggests that, ceteris paribus, its ECI is more likely to flow to countries with low corruption levels and, by extension, better institutions.
Bibliographical noteNOTICE: this is the author’s version of a work that was accepted for publication in China economic review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Bhaumik, S & Co, CY, 'China's economic co-operation related investment: an investigation of its direction and some implications for outward investment' China economic review, vol. 22, no. 1 (2011) http://dx.doi.org/10.1016/j.chieco.2010.09.002
Bhaumik, S., & Co, C. Y. (2011). China's economic co-operation related investment: an investigation of its direction and some implications for outward investment. China Economic Review, 22(1), 75-87. https://doi.org/10.1016/j.chieco.2010.09.002