Is there a Chinese ODI model?
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First, although the majority of China's ODI centers on the service sector - the majority in trade, finance and business activities - its response to the development/revealed comparative advantages of the service sector in host economies is different for OECD countries and non-OECD economies. For the Organization for Economic Cooperation and Development (OECD) member countries, the more comparative advantageous and better development of the service sector, the more ODI China will engage in.
From this it could be inferred that Chinese enterprises intend to learn from the experience and technologies of the service sector's development in OECD countries. In contrast, for non-OECD economies, the more comparative advantageous and better development of the service sector, the less ODI China will engage in.
Second, China's exports display a significantly positive association with its ODI. There are two interpretations for this trend. On one hand, the more China exports to these markets, the better knowledge and experience it will gain. For the new player of outward investment, such knowledge and experience could facilitate direct investment, just like speaking a common language or sharing a common border. On the other, Chinese ODI may be used to service exports.
Third, seeking a market is not a driving force for China's ODI. Neither the host economies' GDP nor their per capita GDP has any influence on China's ODI decision.
There are, therefore, clear differences between China's ODI and that of the developed economies. For China, high profits are not an obvious driving force. Instead, the international competitiveness of the advanced economies and the resource endowment of developing economies are more important for it.
The chief objective of China's ODI is to strengthen the competitiveness and sustainability of domestic production. Acquiring advanced technology, securing commodity supply or even facilitating exports are all ways of doing this.
"China's ODI model" may be transitional. As the Chinese economy develops further, its ODI behavior is likely to converge with that of the developed countries.
If wages keep rising rapidly, China may eventually move its textile, toys and travel goods factories to other low-cost countries. That investment would be more consistent with the market or low-cost-seeking motivations in the traditional foreign direct investment theory.
Again, if further liberalization of the financial industry triggers a rise in the cost of capital and a decline of the State sector, the importance of the "China ODI model" may also decline.
Still, an analysis of the "China model" could increase the understanding of the ODI behavior of other developing countries.
But there is much we don't yet know about Chinese ODI because of the lack of comprehensive company-level data and the problem of aggregate figures. So the current evidence is still very preliminary.
