The Political Economy of Inward FDI : Opposition to Chinese Mergers & Acquisitions

A great deal of political economy scholarship has focused on studying how countries can attract Foreign Direct Investment (FDI), and the effects that FDI has on growth and political stability. A related topic that has received almost no attention, however, is the divergent political reactions to inflows of FDI that occur in the countries receiving investments. This is an oversight because inward FDI flows are not equally welcomed by the host country, and, in fact, often receive strong political opposition. We study this phenomenon by examining political opposition to attempts by Chinese companies at mergers and acquisitions (M&As) with U.S. firms. We hypothesize that although most legal barriers to foreign M&As are based on national security considerations, national security objections are often vehicles to channel other grievances, and economic distress and reciprocity are also key drivers of political opposition. To test this theory, we constructed an original dataset of 569 transactions that occurred between 1999 and 2014 involving Chinese acquirers and American targets. We find that there is more likely to be opposition to Chinese M&A attempts in security-sensitive industries, economically distressed industries, and sectors in which U.S. companies faced restrictions in China's M&A markets