Macroeconomic Prospects for China's Outward FDI

We present evidence from panel data on overseas foreign direct investment (OFDI) by Chinese firms in 103 countries during 2003–2007. The data suggest that Chinese imports, unlike Chinese exports, stimulate investment in the country of origin. This article supports the theory that Chinese investment abroad is horizontal and designed to serve the Chinese local market (import platform investment). Estimates suggest that a 1% change in imports from China will lead to a 0.15% change in Chinese OFDI. We also find that an appreciation of the Chinese exchange rate will have a strong influence on firm entry decisions.