Foreign Direct Investment from Developing Countries: A Case Study of China's Outward Investment

This thesis presents an interpretation of foreign direct investment (FDI) by Chinese firms. The research is motivated by the phenomenon that, compared with foreign investment in China, direct investment from China has so far attracted relatively little attention from researchers. The development of China's outward direct investment exhibits distinctive features. It was expanded rapidly in a relatively short time and was directed heavily to a few developed countries, namely, the United States, Canada and Australia. In addition, it is not evident that Chinese investors possess clear international competitive advantages. Existing mainstream theories of FDI from developing countries cannot provide a ready explanation of the underlying rationale for the pattern of China's FDI. Given the difficulties in providing a convincing explanation of the pattern of China's outward FDI by using mainstream theories, this thesis develops a network model of FDI by formalising network ideas from business analysis for application to economic analysis, and interprets China's outward FDI in terms of the network model. This thesis holds that Chinese firms were engaged in FDI for various network benefits. Accordingly, the geographic distribution of China's outward FDI reflected the distribution of network benefits required by Chinese firms and the relevant cost saving effects for obtaining such benefits. As the functioning of networks relies on elements of market economies, the development of China's outward FDI was affected by the progress of marketisation in China. China's outward FDI has a very short history and comprehensive data on industrial composition and overseas subsidiaries' operation are not yet available. This has ruled out the possibility of more specific testing with formal econometric analysis. Rather, the method of approach is essentially descriptive and the interpretation is mainly based on qualitative analysis.