The effect of the Chinese government policies on outward foreign direct investment by domestic enterprises: A policy analysis

Abstract

By recognizing that foreign direct investments (FDI) are not only vital for advancing firms’ international competitiveness but also they have substantial impact on the national economy, the Chinese government started to encourage capital outflows. However, under the guidance of the “Opening up” policy, China's capital inflows remained far greater than capital outflows. Therefore, the Chinese government has issued a number of policies aimed at driving domestic enterprises to engage in outward foreign direct investment. The most prominent in this series of policies is the “Go globally” strategy and the “The Belt and Road” initiative. In this study, we critically analyze the two policies aiming to understand how China actually promotes the outward foreign direct investment (OFDI) of their domestic enterprises. Using policy analysis technique, we analyze the OFDI–related advantages that can be achieved to domestic enterprises under the influence of government policies. Furthermore, we investigated the impact of government policies on corporate foreign direct investment spinning from the Chinese economy. Our analysis shows that the Chinese government policies can promote OFDI for enterprise, where government support and encouragement schemes can stimulate local enterprises to expand globally. Importantly, the Chinese government use diplomacy to enable these local enterprises to understand the investment policies and institutional environment of host countries in advance, which in turn, drives the risk-taking potential of these enterprises. However, the Chinese government policies also have negative impacts on enterprises’ OFDI.