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Shoaib, Alina (2022) Impact of China’s Infrastructure Outward Foreign Direct Investment. PhD thesis. SOAS University of London. DOI: https://doi.org/10.25501/SOAS.00037747

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Abstract

China’s infrastructure investment has seen considerable growth over the past 15 years. It’s helping fill the existing global infrastructure gap by providing infrastructure facilities that are crucial for the recovery and stability of less developed countries. There is evidence of positive economic impact of China’s infrastructure investment on recipient countries, in terms of lowering trade costs. However, China’s overseas infrastructure investment drive is also criticised internationally for issues such as weak environmental concerns, low transparency and debt sustainability. Moreover, investment in infrastructure bears inherent risks due to large up-front costs and physical nature of investment (Bitsch, et al., 2010). These risks are inflated when combined with host country risks, especially if the infrastructure investment is in a developing country. Concerns are also arising about this huge amount of overseas infrastructure investment displacing domestic investment. These issues not only apply to China’s domestic economy but also global economies. Therefore, it is important to conduct a thorough investigation regarding the impact of China’s infrastructure OFDI. The main participants of China’s infrastructure OFDI drive are state-owned banks and stateowned enterprises. This arrangement provides Chinese government liberty to conduct infrastructure OFDI in an enclosed system that includes financing, construction, procurement and loan repayment. Consequently, Chinese firms often practice this autonomy and alter their strategy of conducting infrastructure OFDI to benefit from host countries unique features, such as geographical, cultural, political advantages etc. Therefore, China’s infrastructure OFDI triggers unique outcomes for Chinese firms and other agents involved. These outcomes vary according to host country location choice. Hence, this thesis focuses on comparison of China’s infrastructure OFDI between three different regions; Africa, Europe and Belt and Road Initiative (BRI). The comparison between these three regions is also the main contribution of this thesis and is applied throughout the thesis. The thesis commences by describing motivation, objectives and contributions in chapter 1. Chapter 2 contains the background information regarding China’s journey in becoming a major overseas infrastructure investor. The next two empirical chapters (Chapter 3 & 4) analyse China’s infrastructure OFDI from firm level perspective. In Chapter 3, I address the concerns caused by the rising scale of infrastructure OFDI by China which suggests that Chinese firms are investing for motives other than profitability. Using Heckman two step model, I first investigate whether Chinese firms are enhancing their profitability by investing in infrastructure OFDI in Africa, Europe and BRI. The empirical results show that China’s infrastructure OFDI has a positive impact on Chinese firms’ profitability. This impact holds true for infrastructure OFDI to all three regions. However, when the sample is split according to ownership status i.e. highly state-owned and low state-owned firms, the results suggest that infrastructure OFDI performed by firms with less state intervention has a positive and significant impact on firms’ profitability. In Chapter 4, I analyse the interactions between Chinese firm’s infrastructure OFDI and its home country fixed investment. Using Heckman two step method and System GMM estimation technique, chapter 4 investigates whether infrastructure OFDI is crowding-in or crowding-out domestic investment. The results show that China’s infrastructure OFDI has a positive impact Chinese listed firms’ home country fixed investment. This result is also true for across all regions; Africa, Europe and BRI. Moreover, this thesis then identifies the channels through which this investment impacts Chinese firms’ domestic investment i.e. the finance channel or production channel. Observing the impact through these channels can aid Chinese firms to make informed decisions, develop better production linkages and also encourage efficient use of finance. The results show that China’s infrastructure OFDI does not impact firm’s domestic investment via the production channel. However, the positive impact of China’s infrastructure OFDI on firm’s domestic investment is reduced via the finance channel. chapter 5 analyses host country issues that China’s infrastructure OFDI is causing. Following the theme of this research, I analyse the impact of China’s infrastructure investment in three regions (Africa, Europe and BRI) collectively and then separately. Moreover, I also compare the impact of China’s infrastructure OFDI on low-income and high-income countries and countries that have low aid ties and high aid ties with China. Using system GMM, I document that China’s infrastructure OFDI with Africa and BRI, low income and countries with close aid ties with China, economically benefit from Chinese infrastructure OFDI. Moreover, I also analyse how motivation of China’s investment can alter the direct impact of China’s infrastructure OFDI on host countries. Specifically, the results show that resources-seeking motivation reduces the direct positive impact of Chinese infrastructure OFDI on African countries, low income host countries, and countries that maintain high-aid connections with China. If China’s infrastructure investment is market-seeking, then the intervening effect of investment motivation is negative for host countries in the BRI region. Finally, the intervening effect of the technology/strategic assets-seeking motivation is negative for European countries, high-income host countries and countries with weak aid ties with China. In chapter 6, I conclude the thesis by discussing the motivation of this thesis and the significance of conducting this research. Finally, I discuss the main findings, policy implications and limitations.

Item Type: Theses (PhD)
SOAS Departments & Centres: Departments and Subunits > School of Finance & Management
SOAS Research Theses
Supervisors Name: Hong Bo
DOI (Digital Object Identifier): https://doi.org/10.25501/SOAS.00037747
Date Deposited: 15 Jul 2022 09:44
URI: https://eprints.soas.ac.uk/id/eprint/37747

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