Understanding Investment by Chinese SOEs in Latin America - Juan Pablo Dominguez

Title
Understanding Investment by Chinese

SOEs in Latin America
A theoretical perspective on practical issues,
2004-2014
(Juan Pablo Dominguez)

DE201265003

XXX(advisor)
2016 3
Understanding Investment by Chinese

SOEs in Latin America
A theoretical perspective on practical issues,
2004-2014
2016 3 7
2016 3 7
Abstract
The following research aims to evaluate the existent conceptual framework in the
decision making process for Chinese multinational enterprises (MNEs) investment in
Latin America during the last decade. It is a multidisciplinary approach to a business
problem that has political and economical ramifications. The theoretical framework is
an integrated approach to IB theory based the General Theory of Multinational Firms,
which finds the motivation for foreign investment in Dunning eclectic paradigm, but
we complement it with organizational theory aspects (Transaction Costs Economics,
Stategic Asset Seeking, and Resource Dependence Theory) and try to understand its
relations with the number of cases for investment by chinese companies. We propose
a structural equation methodology because in this particular type of analysis
(variables with measurement errors, simultaneous causation and unobserved
explanatory variables) it has advantages over regression techniques.
In terms of academic relevance, there are three issues that are relevant when
studying the behavior of Chinese outward direct investment (ODI): 1. Chinese
investment in other countries responds different to western paradigms (motivations
and paths). This means that most likely, traditional existing theories are not adequate
when explaining the phenomenon (Mathews 2006). 2. Chinese ODI is ever more
relevant these days. In October 2015, the Ministry of Commerce has reported a nonfinancial investment of over USD 95 billion in the first ten months of the year 1. Thats
an increase of 16.3% y-o-y and places China as an important player in the
international system. 3. Latin American countries is an important destination for
Chinese ODI in recent years. It would be important to understand the reasons behind
this.
I aim to analyze the behavior of Chinese MNEs in its invesment decisions. It is
important to take into consideration that the Go-Global estrategy is a relatively new
policy and therefore its development is still not clear. This is perhaps one of the
reasons why the behavior of Chinese MNE ODI is not the fully understood at the
moments. Resource seeking motives, market seeking and other theoretical
explanations has been given, but it seems they are not appropriate to explain it. The
idea that emerging markets multinational enterprises, such as those from China, have
an asset augmentation approach to ODI, involving strategic asset seeking behavior,
has gained considerable traction within specific theories (Deng 2012). Many now
argue that MNEs from China do in fact deviate from the predictions of existing
theories (Cui & Jiang, 2012, p. 266). Chinese ODI, in particular, has been identified
as being strongly driven by aggressive acquisitions, predominantly in developed
markets, in their pursuit of strategic assets (Kedia, Gaffney and Clampit 2012). How
1 See: http://economictimes.indiatimes.com/news/international/business/chinasodi-goes-up-to-95-21-billion-this-year/articleshow/49802439.cms?prtpage=1
is the case in developing economies?

Figure 1 Continental Distribution of Chinese ODE Stock, 2014
Source: World Resource Institute, 2015.

Additional to the former, I believe that there is a second stage of the investment
decision making process and it is concentrated in fostering Chinese diplomacy, as
well as making use of chinese resources in other locations so as to maximize their use
as a slowing chinese economy has reduced the amount of locally needed capital.
Researchers have identified new focus of research within the realm of Chinese ODI to
be concentrated in four non-traditional explanations: the latecomer perspective;
Chinese state and government influences; the dynamics of firms and institutions; and
the liability of foreignness (Deng, 2013).
In this fashion, the main purpose of this writing is to provide additional evidence
Chinese MNEs in Latin America into which behavior (market-seeking, resourceseeking or strategic resource-seeking). With this objective in mind, I argue that there
are several layers to be considered previous to the investment decision and are more
related to concepts outside the traditional market or resource seeking behavior so
associated with the homos-economicus portrayed in traditional economic research.
For this reason, I pretend to use a multidisciplinary approach with elements from
International Business Theory, International Relations Theory as well as
Organizational Theory. Furthermore, it is defined in this document that the unit of
study becomes Chinese MNEs ODI investors in the last decade in Latin America.
Keywords
China, Latin America, Multinational Enterprises, Outward Direct Investment,

structural equation modeling, investment
Table of Contents
ABSTRACTV
Keywords
TABLE OF CONTENTS
VII
VIII
CHAPTER 1: INTRODUCTION
10
Sino-Latinamerican context
Economic and political Links
11
11
Literature Review
Cultural links
13
22
CONCLUSIONS
22
CHAPTER 2 CHINAS POLITICAL VIEW TOWARDS LATIN

AMERICA
23
Chinas foreing policy and Latin America

Strategic considerations
Current status and the Zouchuqu (Going-out) strategy
Financing and investment
23
26
28
29
CONCLUSION
30
CHAPTER 3 A THEORETICAL APPROACH TO CHINAS ODI

IN LATIN AMERICA
32
Extant theories of foreign direct investment
Market seeking ODI
Efficiency seeking ODI
Resource-seeking ODI
Strategic asset-seeking ODI
32
34
34
35
35
The chinese case of ODI

Unbalance in the access to Capital and distorted Capital Markets
Ownership advantages of Chinese MNEs
lnstitutional factors influencing Chinese ODI
36
37
38
38
Current research areas
40
A simple theory of Chinese ODI in Latin America

Assumptions
Hypothesis:
41
42
43
CONCLUSIONS
44
CHAPTER 4 MODELING CHINESE ODI TO LATIN AMERICA 45

A model for Chinese ODI
45
Review of previous quantitative studies of Chinese ODI
48
Model specification and SEM

Market-seeking variables
Efficiency seeking variables
Resource-seeking variables
Strategic asset-seeking variables
48
50
50
51
51
PROPOSED MODEL AND HYPOTHESIS
Data
Data source
1
2
ESTIMATION METHOD
Sample size:
MODEL ESTIMATION RESULTS
Estimation results
CONCLUSION
Chapter 1: Introduction
Chinas relevance in the world affairs is more and more evident. It has grown its ODI
tremendously not only in numbers but in value, furthermore it is now one of the most
important commercial partners of most of developing economies (). A logical step to the
highly successful development path of the oriental hegemon is to expand its sphere of
influence via economic ties with more distant economies. The study of Chinese ODI is a
relatively new subject, simply because only after its accession to the WTO, China had
virtually no substantial ODI to account for. The question comes then to: what drives such
decision making process? Which elements are to be most pressing in the moment when
the people who run the process, go for an opportunity in another economy?
The present pages are part of a study intended to decipher, at least partially, to the
theoretical constructs that might be enticing to illustrate the current state of affairs of
Chinese ODI. Unfortunately, given the broad spectrum that ODI entails and the practical
difficulties of making a theory about investment that can become a theory about
everything, we are bound to limit the scope of the study into more specific geographies
and time coordinates. This restriction comes for the unlucky inability of the author to
grasp the whole universe of events that may be of worth studying, but as most of you
should know, parsimony is the key.
The most pressing idea that the book aims to deliver to the reader is that the process
of investing, for large scale projects by Chinese SOEs, is undoubtedly a matter more
concerned with the issues of international politics and relations than those of financial
variables and monetary quests. That doesnt not mean that there is a pure market gain
aspiration when the projects are proposed that are considered by the decision makers (or
policy makers for that matter), but the history of the state of affairs between the Chinese
side and its counterpart play a major role in moving the locomotor of investment from the
Chinese banks arcs to the fields, roads, dams, ports and other important infrastructure
project that Beijing is supporting in many developing economies.
It is my personal belief that the study of Chinese investment abroad should begin by
understanding the mentality of Chinese rulers and how decisions are made within an
organization that is characterized by tradition, values and verticality. That is why any
modeling, theory or hypothesis that aims to test the conditionals of Chinese ODI have to
have their genesis in a field outside of the simplicity of maximization of returns.
Is in this fashion, that a rather well structure economic study of China has to include
at least a chapter on history of diplomatic relations as well as a short introduction to the
main areas that Beijing is strategically considering for expanding its business overseas.
Sino-Latinamerican context
Chinas presence in the region is becoming more and more apparent. Latin America is
probably one of the last bastions of atttention for Chinese enterprises and yet the results
are more and more interesting. If one reviews the trade flows and investment figures,
most probably some of the largest figures will have a good proportion of Chinese
presence. How to attract a more productive and win-win relationship with China is a
topic of interest not only to scholars or policy-makers, but also to the population in
general. This chapter introduces some of the most relevant topics in Sino-Latinamerican
relations so as to provide a context into which the whole dissertation will concentrate.
Economic and political Links

Lets begin by talking about Chinas ascendance as a world power. Chinas role in the
international arena as a global power has been propelled largely by the explosive growth
of Chinas economy over the last 35 year (Lin and Johnson 2014). With an economy
second only to the US, China wields huge swing in the world economy and by extension
in its relations with over other nations. As more countries turn to China for sources of
growth, markets for their products and investment, China has found itself in an
unprecedented position to move into unfamiliar terrains of international relations at a rate
and in scope unthinkable until now even for the most savvy observers of the country (Lin
and Johnson 2014).
For nearly a decade now, trade relations between China and Latin America have been
booming. From 2003 to 2013 alone bilateral trade has increased by over 875.1 percent
(MOFCOM, China Statistical Yearbook 2014 and 2004). In the period since the financial
crisis, countries such as Brazil, Chile and most recently Peru have all seen China quickly
rise to become their number-one trade partner. Brazil-China trade increased 48 percent
from 2010 to 2013 alone, while Mexico-China trade rose 36 percent over the same period
(ALADI, 2015).
Figure 2 Trade with China, 1995 - 2013 (US Billions)
$83
$68
$56
$50
$35
$27
$2
$1
$19
$12
$7
$5
$3
$2
Brazil
Mexico
Chile
$18
$12
Argentina
Source: National Institute of Statistics (INE); Latin American Association of Integration (ALADI);
Economic Commission for Latin America and the Caribbean (ECLAC)
The expansion of economic ties has not been limited to trade. Chinese firms have
also recently dramatically stepped up their foreign direct investment in the region. For
example, within the last two years China has become the top source of foreign direct
investment in first Brazil and then Peru. This boom in trade and investment ties has been
primarily driven by Chinas rapidly expanding demand for Latin American mineral,
agricultural and energy resources. At the same time, Chinese exports to Latin America of
manufactured goods ranging from modems to motorcycles have also grown dramatically.
Figure 3 Proportion of trade with China over total trade, Q1 2014
Chile
Brazil
Peru
Uruguay
Colombia
Argentina
Venezuela
Costa Rica
Bolivia
Mexico
Ecuador
Yet the boom in trade and investment ties between China and Latin America has not
had an equal impact throughout the Latin American region. Exports to China have been
largely concentrated in a small number of raw materials (copper, iron ore, soy and oil)
from a core group of commodity-rich South American countries (Argentina, Brazil, Chile
and Peru). Other countries throughout the region, with Mexico as a primary example,
have a less complementary and more competitive relationship with Chinas export sector.
Even in those countries like Brazil, whose iron ore and soy bean producers have
benefited greatly from Chinas rapidly expanding production of steel and pork, domestic
manufacturers have come under heavy pressure from Chinese competition.
Figure 4 Chinese Loan to Latin America and the Caribbean, 2007-2013 US Billions
2007.0
2008.0
2009.0
2010.0
2011.0
2012.0
2013.0
The following pages will provide a quick view on what the literature has produced to
explain the relations between China and Latin America from an academic point of view.
It serves as an starting point for the main part of the paper to which we dedicate our
different hypothesis and model estimation efforts in order to provide additional evidence
for the theoretical constructs that we build in the coming chapters.
Literature Review
The growth in Chinas economic, political, and cultural relations with Latin America
has been widely noted in the academic literature, popular press, and even in the halls of
the United States Congress (XXXX). Scholars in Latin America were particularly
concerned with the relationship. Chinese economic fundamentals, namely its need for
raw materials and new export markets, led to a rapid expansion of trade and scholars
argued whether this burgeoning relationship was good or bad for Latin America (Lora
2007; Rosen 2003; Blzquez-Lidoy, Rodrguez, and Santiso 2006; Shambaugh and
Murphy 2012). Similarly, press stories focusing on Sino-Latin American relations also
skyrocketed. Latin American Regional Report and the Latin American Monitor reported
just 27 stories in 2002 and 2003, while this number grew to 71 by 2011 and 2012, and 62
from January 2015 to January 2016 (authors count). Committees in the United States
Senate and House held multiple hearings relating to Sino-Latin American relations,
paying particular attention to Chinas expanded trade in the region and its focus on
securing access to raw materials, especially oil (Johnson and Wasson 2011). Hence, we
see that scholars, the popular press, and others are paying close attention to Sino-Latin
American relations.
While these relationships have drawn increased scrutiny, much of the extant
literature focuses these relationships from limited viewpoints. The Chinese government
has largely focused on expanding trade and investment opportunities in Latin America,
while downplaying conflict with the United States (Ellis 2009; State Council of the
Peoples Republic of China 2008). The Latin American literature focuses on whether
Chinas rise is good, bad, or mixed for the regions economies (Gonzalez-Vicente 2012;
Armony 2012; Hillebrand 2003; Mesquita, Moreira 2007). Similarly, the American
literature focuses on whether Chinas presence in the region is good or bad for the United
States and her national interests, not only her economic interests, but also her national
security (Johnson2005; Johnson and Wasson 2011; Paz 2006). Unfortunately, relatively
little of this work has systematically examined how experts and individuals within China
view these relationships.
On the one hand, several studies of the Interamerican Development Bank (BID 2005;
Lora 2005) note that the new economic relationship between China and Latin America
generated a group of winners countries, particularly commodity exporters in South
America, and losers, in particular Mexico and Central America. In addition, they believed
that the effects of China in Latin America would be lower, mainly as a result of the
financial impact of China in the global economy and, therefore, indirect (Lora 2005).
This view has changed significantly in 2010 (IDB 2010) and allowed a broader,
proactive perspective towards China, continuing the original analysis of Mesquita
Moreira (2004) rightly noted that the enormous challenges China meant for Latin
America, especially in the manufacturing sector.
Several studies linked to ECLAC (CEPAL 2004; 2005 / b) analyzed the relationship
of Central America and Mexico to China in general and focusing on value chains relevant
to these countries, such as yarn-textile-garment and electronics . These documents
concluded that China was already an important region for trade and economic partner and
was massively displacing domestic production in domestic markets and other markets
such as the US.

Since then a growing number of studies have pointed out that: 1. The massive
integration of China into the world market and economic relations and direct trade with
Latin America are rapidly changing economic and trade patterns in the region and its
potential "de-escalation" (upgrading), ie its ability to integrate new segments of higher
technology and higher value-added. Several recent studies indicate that significant
demand for raw materials from China in the region, from copper ores, soybeans and
energy, have created a new group of companies "winning".
By contrast, the manufacturing sector in the region which had achieved some degree
of scaling and development since the nineties, and in several countries such as Brazil and
Mexico as a result of import substitution industrialization (ISI) since 1960 he has lost
presence in terms of
GDP, employment and trade (Cesarn and Moneta 2005, Cornejo 2005; Gallagher
and Porzecanski 2008 / b, 2010; Jenkins, Dussel Peters and Mesquita Moreira 2008;
Sargent and Matthews 2007; Oropeza 2008). The positive effect of China on exports of
raw materials from the region has also been considered as critical in current times of
global crisis (Barbosa and Guimaraes 2010; ECLAC 2010 / a).
While it is important to recognize that much more empirical work is required (Dussel
Peters 2005/a, 2010/a; Gallagher and Porzecanski 2008/a; Lall and Weiss 2005;
Shafaeddin and Pizarro 2007), initial results suggest that China has carried out a thorough
process of technological upgrading, unlike Latin America (Dussel Peters 2009; OECD
2010). In addition, we have analyzed in detail the initial displacement and growing Latin
American sales to domestic markets and exports to the United States or the European
Union, by China. Other authors (Blzquez-Lidoy et al, 2006; Lederman et al, 2009) point
out that the evidence for these negative effects on Latin American exports is poor, while
the proximity to the US market has become one of the comparative advantages absolute
most relevant vis--vis China (Sargent and Matthews 2007). Particularly macroeconomic
and exchange rate policies are also powerful mechanisms for competition between Latin
America and China.
Several recent analyzes have noted that reduced levels of FDI between China and
Latin America (although flows from China in the form of search for natural resources
have increased) reflect the still low levels of productive integration between the two (IDB
2010; Decomtec 2008; Jenkins and Dussel Peters 2009; Kawai and Zhai 2009); until
2010, and as highlighted by the IDB (2010: 2), that the Sino-Latinamerican relationship
has remained predominantly on a pillar: trade".
The former explains in part why such economic relation is the focus of large part of
the existing literature. As Figure 3 and Figure 4 show, trade between the two regions
skyrocketed during the 2000s, from only $26.81 billion in 2003 to $261 billion by 2013
(MOFCOM, Yearbook of National Statistics). Much of this trade involved the export of
primary products from Latin America to China, and the export of manufactured goods
from China to Latin America. China is Brazil and Chiles largest export market and
Argentinas second largest (MIT 2014). China imports increasing amounts of Venezuelan
oil, Chilean copper, Peruvian fishmeal, and Colombian and Costa Rican coffee (Ellis
2009). This led to high growth in commodities-based sectors throughout Latin America
(Santiso 2006). China has also sought to diversify its export markets, selling greater
quantities of manufactured products ranging from textiles to electronics (Shambaugh and
Murphy 2012), sometimes at the expense of Latin American manufactures themselves
(Gallagher, Moreno-Brid, and Porzecanski 2008; Jenkins and de Freitas Barbosa 2012;
Mesquita Moreira 2007). The most concrete sign of Chinas long-term plans are the Free
Trade Agreements (FTAs) with Chile, Peru, and Costa Rica (Shambaugh and Murphy
2012). By any measure Sino-Latin American trade increased markedly during the 2000s.
While trade has been the central focus, the literature also discusses Chinese
investment in the region (see Table 1). Latin American leaders excitedly anticipated a
tsunami of Chinese investment after state visits from Chinese leaders and investment did
increase. Almost half of Chinas Foreign Direct Investment (FDI) outflows in 2006 went
to Latin America (OECD 2008), while China accounted for about 10 percent of total
foreign investment in Latin America by 2010 (Shambaugh and Murphy 2012). GonzalezVicentes (2012) case study of Chinese investment in Peruvian mining showed that
markets, rather than political factors determine Chinese investment strategies.
Nevertheless, Chinese investments have been a point of some contention. Brazilian
leaders in particular have complained about the relative lack of investment, going so far
as to complain that Brazil had been deceived by Chinese promises (Economist 2005;
Johnson and Wasson 2011). China has also been criticized for phantom investments,
with Chinese companies hiding profits in Caribbean tax havens rather than investing in
more productive economic sectors (He 2008). Regardless, the literatures focus on the
dynamic economic relations between China and Latin America occupy center stage in the
extant literature.
Table 1 Deepening Economic ties between China and Latin America, USD million
Country or
Overall
%
%
Region
trade
withIncrease
China's
China (2014) 2007 -2011 Total
(2007)
Latin
Brazil
America
Mexico
Argentina
Venezuela
Chili
263277
84,231
33,344
14,759
18,260
31,385
79
98
123
49
211
135
of
% of
FDI
As %
Latin
As % of
China's
from Chinaof All FDIAmerica
All
FDI
to
Total
(2011)
from
FDIo ChinaChina
(2011)
China
(2011)
(2011)
40000
6.628
11,935
15.99
12,054
10.78
1.37
2.31
126
5
43
0.06*
0.68
0.91
41
45
0.45
0.41
185
7
0.29
0.49
81
2
0.67
0.86
13
17
Colombia
8,233
145
0.15
0.22
33
0.01
Virgin
6,208*
9,724**
4,936*
2,241**
IslandCaiman
*
*
Social Sciences
Academic
IslandsSources: Annual Report on Latin America and the Caribbean (2012-2013),
*
*
Press (China), 2013
* As % of Brazil investment overseas
** Investment from Chinese entities registered in the island(s).
***Investment from companies registered in the island(s).
While Sino-Latin American economic ties have grown substantially, the relative
value of the region to China is still considerably small (MIT 2014). Taken together, the
growth in economic ties combined with uneven knowledge of the regions economies
will influence attitudes. While the literatures primary focus has been Sino-Latin
American economic relations, much of this discussion takes place in the shadow of
changing political relations. Over 100 Latin American and Caribbean heads of state have
visited China and multiple Chinese leaders have visited Latin America in recent years
(Johnson and Wasson 2011; Shambaugh and Murphy 2012), including President Hu,
Premier Wen, President Xi and Premier Li (see Table 2). China was able to convince
Costa Rica to switch its diplomatic recognition from the Republic of China to the
Peoples Republic (Ellis 2009) and other Central American and Caribbean states were
likely to follow, at least until Taiwans government and Chinese leaders tacitly agreed to
table this competition. Many Latin American leaders see Chinas rise as an antidote to
U.S. domination, though China has been very cautious on this front (Zhimin and Gregg,
2014). China sought and gained observer status in the Organization of American States
and the Latin American Parliament, as well as sponsoring exchanges between the CCP
and parties in Latin America (Shambaugh and Murphy 2012). The Chinese military has
quietly increased military sales and education exchanges (Watson 2010), but has
maintained a relatively small footprint in the region. The Pacific-Alliance was signed into
effect in 2015, bridging China not only with some Pacific states of Latin America, but
also additional economies.
Table 2 Chinese State visits to Latin America (By Country)

Country
Who
When
Xi Jin Ping
June 2013
Mexico
Yang Jiechi (MFA)
July/Aug
2010
Belize
Purpose
Accomplished
"lifting China-Mexico ties to a

higher level."
Agreements to cooperate on commercial

defense
China-Mexico Permanent National Commission

none
Guatemala
none
El Salvador
none
Honduras
none
Nicaragua
none
Xi Jin Ping
Jun-13
Yang Jiechi (MFA)
Aug-10
Costa Rica
Panama
$400M loan from China to CR
none
Xi Jin Ping
Jul-14
To demonstrate China's strong willingness to

deepen cooperation with Latin America in
infrastructure construction.
Xi Jin Ping
Jun-11
increase
friendship
cooperation"
Yang Jiechi (MFA)
Aug-10
Chen
(MoC)
Oct-12
Cuba
Colombia
"promoting cooperation between the Asian

giant and the Central American country."
Deming
[and]
deepen
8th China-Colombia intergovernmental

economic and trade committee
10 economic accords signed
Signed the China-Colombia Economic and

Technical Cooperation Agreement and letters of
exchange, and a Memorandum of Understanding
on Strengthening Trade Remedy Cooperation.
Venezuela
Ecuador
Peru
Li Keqiang
May-15
Xi Jin Ping
Jul-14
Fan
Xiaojian
(LGOP)
Guo Boxiong
(CMC Vice)
Li Keqiang
Investment and trade deals
Sep-13
Poverty reduction fact finding trip
Nov-11
Increase ties in defense sector
Security assistance (weapons & training) signed
China signed more than 70 cooperation documents

in the areas of energy, mining, infrastructure
construction, nuclear plants and scientific and
technological innovation, valued at more than $30
billion dollars in Colombia, Peru, Brazil and Chile
May-15
Bolivia
Brazil
Chile

A number of cooperation deals on infrastructure
construction with Venezuela.
Signed MOU to identify cooperation mechanisms
on poverty eradication
none
Li Keqiang
May-15
Xi Jin Ping
Jul-14
To demonstrate China's strong willingness to

deepen cooperation with Latin America in
infrastructure construction.
Wen Jiabao
Jun-12
Rio +20
Hu Jintao
Wen Jiabao
Apr-10
Jun-12
2nd BRIC Summit

Rio+20

China and Brazil signed a total of 56 cooperation
agreements, most of which cover infrastructure
construction including railway transportation and
ultra-high voltage electricity transmission.
upgrade bilateral ties to a comprehensive strategic
partnership and set up a comprehensive strategic
dialogue mechanism between their foreign
ministers. Signed 10-year cooperation plan
upgrade their bilateral ties to a strategic
partnership, and double trade in three years.
Argentina
Uruguay
Xi Jin Ping
Jun-11
Li Keqiang
May-15
Xi Jin Ping
Jul-14
Wen Jiabao
Jun-12
Yang Jiechi (MFA)
Sep-11
Wen Jiabao
Jun-12
9 cooperation agreements signed (agriculture,

banking, telecomm)
A number of cooperation deals on infrastructure
construction with Argentina
Rio+20
Pledged to foster their trade ties and to step up

bilateral exchanges between the two nations'
legislative bodies
Rio+20
Paraguay
none
Guyana
none
Suriname
French
Guiana
none
none
Source: Zhimin and Gregg 2014 with additional entries from author.
Brazil was the first stop on Chinese premier Lis tour of Latin America, his first visit to the region since he assumed the
premiership in 2013. China has already announced $50 billion in deals with South America, and this time they focus largely on
infrastructure projects. The contents of the tour gave indications of a shift away from procuring commodities to cooperation and
investment represents a new model for Sino-Latin American relations (XXXX).
Over the last several years, China has provided more loans to Latin America than the
World Bank and Inter-American Development Bank (XXXX). Most of those loans have
been for oil. It is estimated that between 2005 and 2014, Beijing granted loans 119.000
million dollars throughout Latin America and is expected that this trend will increase in
the coming years. This is confirmed by the fact that in the coming years, China has
pledged to invest more than 50,000 million dollars in a series of major projects.
Morevore, Xi Jinping said in 2015 that China was preparing to invest in Latin
America 250,000 million dollars over the next 10 years. In early September 2015, the
Central Bank of China announced the establishment of a fund of 10,000 million for
bilateral cooperation with Latin America in areas of high technology, energy, mining and
infrastructure projects. These figures make it clear that China is displacing US in Latin
America. While in 2014 Chinese investment in the region experienced an increase of
71%, US lenders, on the other hand, they suffered a decline of 20% since 2011.
Finally, it is important to say that Chinas growing influence in Latin America may
induce some governments to break with Taiwan (XXX), thus intensifying the islands
isolation. Among the 25 states that maintain diplomatic relations with Taiwan, nearly half
are in Latin America and the Caribbean: Belize, Costa Rica, Guatemala, Haiti, Honduras,
Nicaragua, Panama, Paraguay, the Dominican Republic, Saint Kitts and Nevis, Saint
Vincent and the Grenadines, and Salvador.
For its first fifty years the Peoples Republic of China (PRC) took little interest in
Latin America. The United States exercised unrivalled political and economic power in
the region, and is still the dominant influence2. While Cuba established diplomatic
relations with China from 1960 onwards, most Latin American governments waited until
President Nixons visit to Beijing in February 1972 before recognising the Peoples
Republic: in 1972 Argentina and Mexico recognised the PRC, followed by Brazil two
years later and, later still, Bolivia in 1985. This period of relative indifference was now at
an end. President Hu Jintaos visits, towards the end of 2004, to Brazil, Argentina, Chile
and Cuba and, a year later, to Mexico attested to Beijings interest in the region3. While
numerous studies have focused on Chinas policy towards Africa, its role in Latin
America is less frequently touched upon. Yet, its growing presence there is of the greatest
economic and geostrategic significance; and raises concerns and anxieties both in Latin
America and in the United States, where Beijings interference in the region has aroused
something less than enthusiasm. In media and political circles, periodic alarms have been
sounded over the Chinese presence in Americas back yard4. Washingtons fears have
been strengthened over the past year with the electoral triumphs of Michelle Bachelet in
Chile, Alan Garca in Peru and then Lula da Silva in Brazil, all of whom are openly
seeking closer relations with Beijing.
Cultural links
While economic and political relations dominate coverage of Sino-Latin American
relations, some research also examines changing cultural links. Ethnic Chinese
communities are found throughout Latin America, with approximately 1 percent of
survey respondents self-identifying as Asian according to the Latinobarometer
(Latinobarometer Various Years). Not all who identify as Asian in these surveys are
ethnic Chinese, yet ties between these China and Diaspora communities have been the
focus of CCTV broadcasts (Summer 2013). China has opened a number of Confucius
Institutes in Latin America and Chinese tourism and student exchanges have grown
(Shambaugh and Murphy 2012). Furthermore, the growing popularity of soccer/football
in China and the awarding of both the World Cup (hosted this past summer) and
Olympics to Brazil likely increased Chinese interest in and knowledge of Latin America.
In short, we expect experts and interviewees with links to Latin America to have more
positive evaluations of the region, as well as a desire for continued deepening ties.
Conclusions
Most of the literature has revolved around economic ties. Investment is also part of
it.
Chinas influence in Latin America is growing alongside its economic links.
There are positive cultural links between the regions and there is also a growing
political approachment in the region.
China's presence in Latin America is growing at an unprecedented pace.
Notwithstanding long tradition of the relationship, it seems to have become much more
visible in recent years.
Chapter 2 Chinas political view towards Latin

America
In China, business and politics go hand in hand. No major investment in Latin
America has been achieved without the prior visit of high-ranking officials. This
demonstrated for instance, by the signing of the relevant agreements in Argentina during
the last presidency of Cristina Kirchner and presinde Xi for the hydroelectric power
plants in Santa Cruz called Jorge Cepernic y Nestor Kirchner. A US5.7 billion project,
came as one of the most important diplomatic and economic links between the China and
Latin America in the nearest decade. Since then, several large-scale projects have been
announced but none of them have been put into execution as the NKJC project.
The aim of this chapter is to provide evidence that the analysis of investment by
chinese companies in Latin America is an event that must consider political and
diplomatic ties between the two. In this fashion, we divide the chapter into 5 main parts.
The first one talks about the guiding principles of chinese diplomacy and how they relate
to Latin America. The second one provides examples on how such diplomacy was a
prerequisite for investment. The following section presents some strategic concerns of
China in the region and finally while the fourth section talks about current investments
and the go-global strategy in the region. Finally we end the chapter with a set of
concluding remarks.
Chinas foreing policy and Latin America

China's diplomacy over the past 60 years can be divided into two periods with
1978 as the watershed (Zhang 2010). In the first 30 years (1949 - 1978), the focus of
China's diplomatic tasks was to oppose the threat from big powers, consolidate national
independence, and safeguard sovereignty and territorial integrity. However, since its
opening up and reform in 1978, China has re-oriented its diplomacy to create an external
environment conducive to its domestic economic development in the midst of the
changing international situation.
Most recently, one stumbles into the notion of a 'harmonious world'. This concept
of diplomacy offers a principal guideline to the future direction of Chinese foreign
behavior and policy. Its concept is a strategic innovation to further facilitate the backbone
of China's foreign policy principie, known as "Five Principies of Peaceful Co-existence."
Its aim is twofold. One is to further the precipitation of China's desire to preserve world
peace and stability by realizing harmony in a world of diversity, thereby serving the
foremost goal of current Chinese foreign policy (XXX). Another aim is to materialize the
practice of such principies as mutual benefit, equality, and non-interference of domestic
affairs. In sum, respect to diversity in ideology, values, and system is a prerequisite to the
realization of a harmonious world. Nevertheless, China pursues a foreign policy with its
own conviction and belief in such principies regardless the status of a state. How others
perceive it does not seem to concern China as long as their relationship is deemed to be
mutually beneficial and practiced on equal basis (XXX).
Despite the longevity of the Five Principies, on which the idea of creating a
harmonious world is founded, China has yet to win sufficient trust and confidence from
predominant actors like the US regarding its recent diplomatic excursion into developing
countries including Latin America. Although China gets a wide approval of being a late
comer to international affairs, and therefore, it is an inevitable due course for China to
become more deeply engaged in and integrated into the world system, at the same time, it
raises a dire concern to major international actors. Their concern is simply arisen by the
sense of uncertainty about where the rise of China will take it to, and the sense is deeply
rooted in the theory of power transition. According to the theory, it will be inevitable for a
state like China to challenge the primacy of the US in due time as a result of its
ascendancy to a great power status underpinned by its accrued power from economic
success and enhanced political influence.
The study of the motivations behind China's growing presence in Latin America
appears to bear significance not only because of its political and diplomatic consequences
but alos for its economic relevance. A more in depth analysis of this issue requires
including Chinese domestic politics and foreign politics but unfortunately we only
provide a superficial account of the issue. Most ofthe literature on the subject is heavily
approached from American or Westem perspectives, focusing only on the phenomenal
aspect of Chinese engagement discourse with the region, which has naturally led to a lack
of substantial analysis on Chinese policy motivation, orientation, principies, strategies,
and goals (XXX).
During the Cold War period, issues conceming China's interest in Latin America
was basically oriented towards its political and security outlook. China and Latin
American states also shared a strong interest in pursuit of independent and autonomous
foreign policy. In materializing this, they both actively participated in Non-alliance
movement and the Group 77. They also strove hard in furthering their efforts towards the
idea of creating a new intemational political and economic order.
Economic interest remained secondary and marginal during this period. One of
the most attributing factors was their economic conditions: both were underdeveloped
and poor Third World economies. In addition, both economies did not have much to offer
to each other in part because of similarities in their industrial structure. Moreover, the
absence of formal diplomatic recognition between China and Latin American states was
another salient impediment to the chance of developing economic relations in part
because most ofthe states had diplomatic relationships with Taiwan (XXX). Latn
America during the Cold War period was heavily influenced by the US as it intervened
very much into domestic politics of Latin American states in the name of 'Monroe
doctrine.'
With the end of the Cold War, coupled with the rapid processing of globalization
and deepening integration of world economy, China and Latin America would find
renewed political and economic interests in each other (XXX). China's interests in its
relations with developing countries are multifaceted. There is a variety of issues
conceming Chinese national interest. Most of all, developing countries embody the
fundamental foreign policy outlook and values of Chinese foreign policy. China remains
a part of Third World, and it is unthinkable to exclude itself from Third World (Jubany
and Poon 2006: 4). Its policy and policy goals, therefore, naturally fall in the same line
with those of most of developing countries (XXX).
Chinese policy on Latin America and developing countries shares the same policy
goals in enhancing solidarity and cooperation, according to China's Policy Paper on Latin
America and the Caribbean published on November 5, 2008. Although China in recent
years has been restraining from making explicit of its desire for a multipolar world,
however, it is well represented in its policy towards Latin American, and well respected
and accepted by Latin America states (Delamer, Malena, and Pom 2004: 79). They both
value the importance of South-North dialogue and South-South cooperation as a means to
settle the economic disparity between the rich and poor.
Secondly, China's interest in issues is awakened by the economic opportunities in
developing countries and Latn America in particular. China's international trade has
expanded at a rapid pace. Trade has been the driving engine of its miraculous economic
development. Given its ever-expanding intemational trade in terms of both sheer volume
and market share, Chinese expansion into Latn America was naturally destined. Given
the reciprocal nature of intemational trade, Latn America's economic engagement with
China also began to grow, largely for growing Chinese interest in Latin America's
economic merits: markets, natural resources, and raw materials. China values Latn
American market not only for its potential but also for the progress it has made in the
regionalization process. Moreover, their industrial and economic structure is viewed as to
be mutually reinforcing and benefiting (Lu 2007: 62-3).
Thirdly, Latin America, for instance, is a world-class supplier of natural resources
including energy resources and raw materials (Jiang 2006: 14). China relies heavily on
imports for copper, iron ore, and food grains. Its import dependence for energy resources
is ever growing larger. Energy ties with Latin America have the dual benefits of an
alternative source of supply as well as a bargaining power over other suppliers. China has
long pursued to diversify its import source of energy, expanding from Russia to Central
Asia to Africa. This diversification policy has helped China gain leverage over suppliers,
thereby enhancing its bargaining power. With respect to Latin America's potential as an
export market, China has been proactive in pioneering Latin American markets. Its efforts
have paid off large dividends. However modest the trade share is, Latin America rapidly
rose to become China's fifth largest export market.
Lastly but not least, Latin America remains an itsmus test of Chinese diplomatic
competition against Taiwan. It is a region with a number of states that maintain
diplomatic relationship with Taiwan. Of the thirty-three regional states, twelve recognize
Taiwan as a sovereign state, a diplomatic challenge to 'one China policy' in the eyes of
Beijing.(Davis 2007: 20).
Strategic considerations
China's approach to Latn America is carried out strategically because it is
political. As indicated above, China prioritizes political relations above anything else
(XXX). A sound political relationship is a precondition to the relationships in other
sectors. Economic relationship, for instance, is premised upon friendly poltica) relations
(XXX). Cultural exchange can be facilitated by stable political relations; China's 'soft
power' will otherwise be viewed as vigilant.
Hence, ever since Chinese leadership began to emphasize the value of relationship
with Latin America in the late 1990s, it was they themselves who took the initiative to
pursue political relationship with regional states (XXX). During this pursuit, Chinese
approaches were revealed, and from this, Chinese strategies can be inferred (XXX). At
the outset of development of the relationship, Chinese top leaders called for summit
meetings with Latin American counterparts (see Table 2). While they toured regional
states, they would basically discuss and negotiate their interests at the bilateral level.
Upon the foundation of political relationship, China furthers its relations in other areas. A
salient strategy applied in the economic realm is 'zouchuqu (going out)' strategy.
Chinese leaders sustained their summit diplomacy with Latin America. In 2001,
then president Jiang Zimin made his last official trip of his tenure (1993-2002) to four
regional states. After succeeding Jiang in 2003, the fourth generation leader Hu Jintao did
not hesitate to follow his predecessor in visiting the region (six states, to be specific) in
November ofthe following year. Hu's visit was considered historie because it paved way
to enhanced strategic understanding between China and Latin America, improved trust
and confidence, and consequently led to mutual understanding on the importance of
exchange to a new level.
One of the most prominent achievement Hu retrieved from his visit was the
winning of Beijing's coveted designation of market economy status from some of the
largest economies in the region, namely Argentina, Brazil, Peru, and Chile. In retum,
from 1996 to 2000, 8 presidents, 3 govemor-generals, and 3 prime ministers from Latin
America visited China. In its active pursuit of interests in Latin America, China's strategy
of bilateral approach was further emphasized. China has thus far succeeded with this
approach by successfully capitalizing on the concept of partnership in promoting its
relations with the Latin American states.
Argentina moved up the ladder of partnership at a much faster pace. It was first,
for instance, recognized as a "cooperative partner" as June of 2004. During Hu's state
visit in November 2004, it was 'promoted' to be a "strategic partner." The fast changing
character of the bilateral relationship, according to sorne analyses, is attributed to the
result of Argentina's convey of a greater willingness for political collaboration with China
(Dominguez: 23). Venezuela was endowed with "friendly cooperative relations" upon
former president Jiang's visit in April 2001. It would take only a month after the
bestowment ofthis label that China upgraded the bilateral relationship to "strategic
partner" during Venezuelan president Chavez's visit to Beijing.
Economic ties based on improved political relationship have been manifested in
the rapid increase of trade volume and investment. China's trade with the region in 1975,
for instance, stood at mere $200 million. After thirty years in 2006, the total trade volume
exceeded $70 billion. What is noteworthy is that a great portion of this was achieved
between 2000 and 2006 when the bilateral trade increased by over 500 percent (He 2007:
842).
How the improved political ties had a spillover effects in other aspects of the
bilateral relationship between China and Latin America is summarized in the following
bilateral cases. With Brazil, unlike other cases, the political impact on the economic
realm in particular has been much more visible. Since Brazil received strategic
partnership in 1993 when the then president Cardoso became the first Brazilian president
to visit China, the bilateral relationship burgeoned upon a solid political foundation (Wu
2005: 13). In 2002, China surpassed Japan as Brazil 's largest trade partner in Asia. In
2004, as the bilateral trade exceeded $12 billion, and by quintupling from 2000 and 2004,
China became Brazil's fourth most important trade partner. Brazil supplies 30 percent of
China's total soybean imports and16 percent of total imports of iron ore concentrates
(Dominguez: 27). Chile has been the most visited Latn American nations by Chinese top
leaders. Since former president Yang's visit in 1990, former president Jiang visited twice
in 1993 and 1997, and president Hu in 2004. Reciprocally, every Chilean president
visited Beijing since 1990-1992, 1995, and 200l. Pinochet as military commander-inchief also visited China in 1993 and 1997. Moreover, Michelle Bachelete, the newly
elected president in 2014, has also declared for continuity in his nation's policy to China.
Mexico was one ofthe earliest Latn American states that recognized China in
1972, only second to Cuba. Since the normalization of relations in 1972, the relationship
experienced a great magnitude of fluctuation. Strange enough, it enjoyed its peak during
the Cold War era, and it is somewhat contrary to the post-Cold War period, full of
controversial relation to intemational affairs. The dark side of the relationship began to
Ioom large in 1993 when the Mexican government imposed 1000 anti-dumping measures
on Chinese goods (Dominguez: 38). Conflicts in trade relations eventually developed
over into political ones. Out of fears of Chinese growing competition, Mexico would take
the economic issues into political arena to challenge China issues such as human rights
issue, Tibetan issue, and others alike. Nonetheless, Mexico as one of the leading
economies in Latn America bears significant strategic meanings to China's national
interests. lt is recognized as a strategic partner to China in 2004. The notion of
partnership was not, however, appreciated by the Fox administration when it declared
China as a competitor and not partner during Vice-president Zeng Qinghong's visit in
2005.
Beijing and Caracas signed numerous contracts to develop Venezuelan oil fields.
Apart from energy resources, the cooperation between the two nations is quite active in
technology transfer area. In 2005, Venezuela signed a deal with China to build and launch
a satellite in 2008. During his visit to China in December 2004, Venezuelan president
Chavez observed that the investment and trade agreements signed could generate $ 3
billion in 2005.
In development in other areas, a joint venture company between Ecuador and
China agreed on the acquisition of EnCana Corporation's oil and pipeline asset in 2005
for $1.42 billion. Bolivia invited China to develop its gas reserves. In the Caribbean,
China is enticing, for instance, Dominica with $112 miIlion investment at the expense of
cutting off ties with Taiwan (Noriega 2007: 3).
Brazil, Cuba, Argentina, and Chile in 2004 were selected as "Chinese group
travelers' destination," or also known as "Approved Destination Status (ADS)." Cuba was
the first Latin American nation to be granted of such a status in 2003. Mexico and Peru
joined them in 2005. Regarding the Caribbean, China listed Antigua and Barbuda,
Barbados, the Bahamas, Grenada, Guyana, St. Lucia, Dominica, Suriname, Trinidad and
Tobago, and Jamaica as tourist destinations. Nonetheless, they are yet to witness
substantial numbers of Chinese tourists, and hence, the status seems to remain rather
symbolic. This designation is politically significant and economically meaningful
because it serves as a diplomatic tool for Beijing and selected nations can hope to realize
millions of dollars in revenue per year (Dreyer 2006: 92).
Current status and the Zouchuqu (Going-out) strategy

Zouchuqu strategy has in recent years been an impetus behind China's improved
relations with developing countries and Latin America in particular (XXX). lt offers
justification and legal grounds to its efforts for a greater economic engagement through
investment with those states whose relationship is much improved as a consequence of

summit meetings and bilateral efforts (XXX). The goals of the strategy are multifaceted.
While it emphasizes the need to pursue this strategy to secure the resources to help its
economy to sustain continuous growth, it also envisions its economy's place in the world,
especially in developing countries. Furthermore, it values the market opportunities in
these states. It also encourages Chinese firms to go abroad to achieve these objectives.
Moreover, it underscores Chinese government's support to such endeavor by Chinese
enterprises. At the same time, it also highlights the need for Chinese businesses to
advance into the developed world through aforementioned multilateral efforts.
In sum, the strategy can be viewed from two different perspectives. From the
perspective of China's advancement into developing countries, the purpose is obviously
to pioneer new markets, to secure natural and strategic resources, and to help the
economic development of developing countries in the end (XXX). With regards to the
developed nations, the strategy is designed to overcome the obstacles and barriers that
hinder China's pursuit of high technology and related information and skills through
direct engagement of Chinese firms in these nations. In practice, this strategy in
developed economies has translated into the M&A fields were technology and know-how
are the main objective of chinese investors so as to quickly reduce the gap between
mainland and foreign competitors.
Thus far, China's zouchuqu strategy has been most active and visible in Latin
America. As of 2013, China's outward direct investment stock in Latin America totaled
US86 billion. Most of the investment is in financial assets directed to The Cayman
Islands, followed by the Virgin lslands. The next four largest host countries are Mexico,
Peru, Brazil, and Venezuela.
Financing and investment

The flow of financing from China to Latin America doubled in 2015 to 29,000
million dollars, Venezuela, Brazil and Ecuador as principal recipients, and shift towards
infrastructure projects.
Despite the global economic slowdown and the bleak outlook for 2016, with a
second consecutive year of negative growth in Latin America, funding from China to
Latin America was 29,000 million in 2015 compared to 19,000 million in 2014.
They come, as has been previously, by two government institutions: China
Development Bank and Export-Import Bank. Again, as has been the case in recent years,
China's investment in Latin America exceeded joint loans provided by the World Bank
(WB), the Inter-American Development Bank (IDB) and the Development Bank of Latin
America (CAF ) said Kevin Gallagher, a professor at Boston University and coordinator
of the report at the press conference presentation.
The data show China "to strengthen its investments in Latin America at a time when
other institutions are reducing the" as the World Bank, which lowered its lending to the
region by 8% to 8,000 million last year, and the IDB it made a 14% to 11,500 million.
By country, the trend a decade ago, when it began to be compiled this database in
2005, Venezuela, Brazil and Ecuador remained ahead. In 2014 Brazil received 10,650
million dollars, followed by Venezuela with 10,000 million dollars, and Ecuador 7,000
million.
In the case of Brazil, most of the funding went to the state oil company Petrobras for
petroleum development; as in Venezuela, the state oil company PDVSA, earned 5,000
million. Ecuador, meanwhile, received most of the funding for transport projects, health
and education.
Then stood Bolivia, which approved funding of $ 850 million, all dedicated to
improving the road network, including its share of the proposed bio-oceanic corridor
linking Brazil, Bolivia and Chile. For its part, Costa Rica earned $ 400 million, its first
agreement with China and will be used to finance the highway between the capital San
Jose and Limon; and Barbados, 170 million for the rehabilitation of Wyndham Tourist
Complex.
China has announced three new platforms funding, totaling 35,000 million dollars, so
it is expected that "these flows grow further in the future." The China-LAC Investment
Fund for Industrial Cooperation with 10,000 million; Special Loan Program for
Infrastructure Projects China-LAC, with 20,000 million; 5,000 additional to the already
established Fund China-LAC cooperation. Since 2005, funding for China to Latin
America amounted to 125,000 million.
CONCLUSION
Chinese advancement in both diplomacy and economic realms in Latin America
has been a recent phenomenon. Although the bilateral relationship between China and
Latin America began in the early 1970s, however, the development of the relationship has
remained in most of time very much id le. lt has not advanced as much as both parties
desired due to historical reasons (e.g. China's Cultural Revolution) and political reasons
(e.g. US intluence) (Zhang 2007: 24). Soon after China's engagement became visible first
with frequent visits by the head of the state and later by high ranking officials, heated
debates naturally arose in the American policymaking community and academia in order
to find the Chinese true intention behind all these maneuvers.
Strategic and go-global
Finance
Chapter 3 A theoretical approach to Chinas ODI in

Latin America
The previous chapters presented a rough sketch of academic literature review
alongside with a context into which economic, political and cultural phenomena was
described revolving Chinese-Latinamerican relations in the past decades. This chapter
pretends to center its focus in providing a more specific academic view on such relation
with the objective to provide material for future model estimation. The different concepts
and constructs displayed below are the continuation of several works from several
researchers with the added value of putting it into the Latin American context.
In this sense we divide this chapter into 4 main sections. The first section will
provide a quick review of extant investment theories. The second section is probably
more interesting because it shows why such theories have failed to explain the Chinese
experience of outward direct investment and the current research areas in the field. The
third section will provide some of the current field of study in Chinese ODI literature.
The fourth section provides a short theory that we believe might provide some
ellucidating conditions into which ODI in Latin America would be better explained.
Finally we end the chapter with a set of concluding remarks.
Extant theories of foreign direct investment

The study of why firms put reources into different production activites in different
locations is as old as the study of business itself. International business activity can be
traced back to the ancient world and further along the road, several multinational
corporations (MNEs) can also be identified in Europue in the middle ages and in the
beginning of the modern era (Dunning, 1993).
Modern international business acitivty became more apparent only after the
industrial revolution. It is when, after realizing the power of factor specialization, which
entrepeneurs were able to learn tat efficiency is obtained through organizing the relevant
factors according to their advantages. That is to say that modern MNEs, in particular,
have their roots in the massive international movement of factors that took place in the
nineteenth century (Dunning, 1993a: p.99). Resource-seeking was the most common
motivation of FDI in this period, even if by 1850 many firms had already crossed the
Atlantic, in both directions, in what can be defined as market-seeking investment
(Dunning, 1993a: p.100; Jones, 1996: p.5).
Despite the presence of FDI, most foreign investment in the nineteenth century - and
indeed until the late 1940s was portfolio capital. As a result, international business
activity was largely ignored in economic theory until the late 1950s (XXX). After the end
of colonialism and the spread of capitalism, only then did the international movement of
capital was considerable enough to catch the attention of academics. A possible reason for
such late bloom is that the phenomenon did not have a major perceived economic impact.
On the other hand (and probably more importantly), the neo-classical theory, based upon
perfect markets and the international immobility of factors, did not easily incorporate
multinational activity (XXX).
The growth of FDI (and of the MNEs themselves) that followed World War II
emphasised the inadequacy of the neo-classical theory to explain the phenomenon and the
need for a whole new approach. Economic theories passing from Ricardos classic model
of comparative advantage, passing through the Heckscher-Ohlin model, failed to explain
the growth of FDI during the post-war era. The volume of international investment not
only grew substantially, it started to reduce its concentration in primary goods, and to be
increasingly directed towards the production of knowledge-based products in other
developed countries (Buckley and Casson, 1976: p.36). Furthermore, important changes
in the organisation of international business were taking place, in particular, the
development of horizontal MNEs and the new Japanese vertical foreign investments
(Dunning, 1979: pp.270-2; 1993a, pp.126-7).
It was not only after Vernons seminal piece of the product cycle theory that research
on the determinants of foreign production became extensive (XXX). Two schools of
thought emerged as the contesting approaches for providing a consistent explanation of
the reasons why firms choose to own production and trading facilities abroad: the
Reading School with the internalisation theory headed by Buckley, Casson, Rugman
and Hennart; and the eclectic paradigm maximized by Dunning. Additional to these
efforts, scholars at the University of Uppsala (Johanson, Wiedersheim-Paul, Vahlne)
started investigating the internationalisation process of individual firms, widening the
scope of the new discipline (XXX).
Is in this fashion, and bearing that the scope of this paper isnt a deep discussion of
the history of FDI theory development, we skip most of the work to bring up some of the
most relevant constructs:
The internatilisation approach which has been most most associted with Buckley and
Casson (1976) and it represents a different perspercitve from the traditional market
view of the interaction of the agents that compose an economy, regardless if its an
international economic system or a simpler isolated one. This view provides a new set of
tools that give the universe of FDI study a compeling starting point into which one can
derive certain principles that could be useful in order to explain or understand the
complexities around it. Following their work, a very basic generalization could be the
starting point: (1) firms internalise missing or imperfect external markets until the costs
of further internalisation outweigh the benefits; and (2) firms choose locations for their
constituent activities that minimise the overall costs of their operations (P. J. Buckley, J.
Clegg, et al. 2007). In other words, the classical principles of economic theory are being
applied in the sense of rationalization and resource allocation efficiency. Neoclassical
schools of thought are immediately represented in this traditional way of thinking and
model especification follows the same path as economics would do.
A basic tenant of such view is that the expansion by the internalisation of markets
means that firms use FDI to replace imperfect external markets in intermediate products
and knowledge (as exemplified by exporting and licensing) and appropriate the profits
from so doing. In the case of emerging economy MNEs, there are likely to be particular
imperfections in home country capital markets that may require special applications of
the theory, and this, as we shall see, is true of China (P. J. Buckley, L. J. Clegg, et al.
2007).
Now, it was with Dunning that a separation from the pseudo-orthodox economic
perspective of the theories of FDI that a shift in theorey came about. Dunning's eclectic
paradigm came to the rescue and suggested three primary motivations (Dunning, 1977,
1993): foreign-market-seeking FDI; efficiency (cost reduction)-seeking FDI and
resource-seeking FDI (including a subset that is known as strategic-asset-seeking FDI).
Market seeking ODI

As noted by UNCTAD, market-seeking ODI is by far the most common type of
strategy for developing-country TNCs in their process of internationalization (UNCTAD
WIR 2006). Several recent studies point to the rise of strategic asset-seeking motives
driving Chinese ODI particularly towards large developed markets (Kedia, Gaffney and
Clampit 2012). In their study covering Chinese ODI from 1984 to 2001, Buckley and al.
discovered that market seeking was a key motive for Chinese ODI in the period under
study (P. J. Buckley, L. J. Clegg, et al. 2007). However, over this period, Chinese firms
have moved away from undertaking mainly market-seeking strategies in nearby foreign
markets towards the securing of raw material even in riskiers markets (P. J. Buckley, J.
Clegg, et al. 2007).
Efficiency seeking ODI

Efficiency-seeking ODI is an important motive, but its prevalence varies
considerably among developing-country TNCs, especially in terms of their country or
region of origin and industry (Gugler and Boie 2008). Most of the companies for which
efficiency-seeking ODI is important are Asian and in three main industries, electrical and
electronic products, garments and IT services (UNCTAD WIR, 2006). However, in
some sectors where competitive pressure is very high, other cost-reducing factors,
including national and international policies, seem to have induced efficiency-seeking
investment by emerging countries firms including Chinese companies. For example,
companies from China have invested in African countries such as Lesotho, Malawi,
Senegal and Swaziland to benefit inter alia from special treatment (duty-free) accorded
by some developed countries to product exports from these African countries (UNCTAD
WIR, 2006).
Resource-seeking ODI
China tremendous economic development requires a steady supply of natural
resources, including ferrous and non-ferrous metals, precious metals, minerals and oil and
gas. Chinese companies have thus developed enormous activities in resource-seeking.
ODI in natural resources are not driven by regional proximity, but simply by the
availability of assets (Gugler and Boie 2008). The active acquisition of natural resources
stands out amongst Chinese investments abroad, and destinations for Chinese outward
ODI are resource-rich countries around the globe, such as African and Central Asian
countries, along with Australia, Russia and Canada (P. J. Buckley, L. J. Clegg, et al.
2007). The common rationale to set up subsidiaries abroad is to ensure a stable supply of
resources for the own operations in production and construction (Gugler and Boie 2008).
Strategic asset-seeking ODI

According to the global survey carried out by UNCTAD, Chinese companies
investing abroad regard strategic asset-seeking as the second most important motivation
after market-seeking. Among Chinese MNEs, 51 per cent regard created-asset-seeking as
an important motive for their ODI, compared to 85 per cent for market-seeking, 39 per
cent for efficiency-seeking and 40 per cent for resource-seeking ODI (UNCTAD WIR,
2006).
Generally, strategic asset-seeking is often aiming at the acquisition of information
and knowledge on how to operate internationally. However, with growing experience of
Chinese firms in this, their goal has rather turned to concrete intangible assets, such as
advanced proprietary technology and immobile strategic assets, both through greenfield
investments and acquisitions (Anderson-III 2014). The acquisition of foreign
technologies and brands is often regarded as a short cut to establish a company as an
internationally known, quality producer with a portfolio of latest technologies and

services, and an efficient distribution channel. Acquisition will function as a fast route to
such benefits, and in addition, will also deny them to competitors (Anderson-III 2014).
The previous section gave a quick look at the theoretical development of FDI in the
last 70 years. The initial postulation began as an offspring of economic theory tradition,
which emerged only after capital gains in the post-war era, were large enough that the
traditional economic theory failed to account for it. Academics began to ponder the
necessity of providing new ways of explaining FDI and came up with different options.
Some of the most studied motivatiosn behind the increasing flow and stock of Chinese
ODI include: acquiring strategic resources/assets, adopting advanced technologies,
attracting global talents, avoiding trade protections and high tariffs (Barney, 1991; Deng,
2007; Boisot and Meyer, 2008; Rui and Yip, 2008; Deng, 2012)..
The internalisation approach, based upon Coases perspective of the firm, has
provided a roadmap that produced research and theories that seems to fit in some cases.
Unfortunately, that doesnt seem to be the case when one is studying developing
economies, and in particualr China ODI. The following paragraphs gives several
arguments into which a different perspective should be considered in this case.
The chinese case of ODI

The process of Chinas reintegration with the global world economy began with the
Open Door policies in 1979s. Quite soon, in the middle of the 1980s, clear and concrete
political motivations for the opening were stated (Gugler and Boie 2008). As Zhan notes,
the important aims were to secure a stable supply of resources that cannot be sourced in
China, to contribute to foreign exchange earnings and generating export opportunities,
and channeling advanced technology and equipment to China (Zhan 1995). As a keystone, in 1999, the go-global initiative (zou chu qu) was established, aiming at
promoting the international competitiveness of Chinese firms.
In its search for newer markets, China would be then prone to have a Market-Seeking
motivation of FDI for traditional trade supporting reasons, i.e. to access distribution
networks, to facilitate the exports of domestic producers, and to enhance exports from the
host country to other large and rapidly growing markets (XXX). Regarding to efficiencyseeking FDI, such will occur when outward investors seek lower-cost locations for
operations, in particular in the search for lowercost labour. Given China's comparatively
low labour cost levels this motivation is unlikely, and is not explicitly considered here.
Resource-seeking FDI from emerging economies occurs to acquire or secure the supply
of raw materials and energy sources in short supply at home. This may well involve
Chinese ODI in relatively high-income countries that have significant energy reserves
and raw material deposits (e.g., Australia and Canada). It may also involve the search for
specific assets such as R&D capacity and output, design facilities and brand names that
are embedded in advanced country firms and which can usually be accessed only by
takeover of these firms or subdivisions of them (Dunning, 2001).
The question then arises as to whether FDI from emerging economies and,
specifically, from China requires a special theory nested within the general theory above.
Buckely et al have proposed three main conidtions that appear when a specific case of
study does not fit into the general theories of FDI: capital market imperfections, the
special ownership advantages of Chinese MNEs and institutional factors (XXX).
Unbalance in the access to Capital and distorted Capital

Markets
In China for instance, given the large sums of capital that were available after
decades of unprecedented growth, the market for capital showed a semipermanent
disequilibrium that gave incentives for companies and people to exploit overseas. In this
sense, market imperfections may be transformed into ownership advantages by emerging
economy firms (Buckley, 2004a). In other words, firms, as in the case of large chinese
investors in the infraestructure secto in Latin America, have found easy-cheap capital
made available by the China Development Bank and the Export-Import Bank, to develop
activities at below standard capital rates. This type of situation is what Buckley refers to a
market imperfection that incetivises Chinese ODI.
Furthermore, one can argue that State-sponsored soft budget constraints make
acquisition by Chinese enterprises a 'normal' mode of entering and penetrating a host
economy (Warner et al., 2004). The 'sizeable venture capital' afforded to SOE is
exemplified by the State Council's provision to the China International Trust and
Investment Corporation (CITIC) when it was instructed to explore overseas investment
opportunities in priority resource sectors (Zhang, 2003). Different authors have given
several other examples. For instance, The State Council also directed the transfer of the
China Investment and Trust Corporation for Foreign Economic Cooperation and Trade
(FOTIC, previously the financia} arm of MOFTEC) to the Sinochem Group, effectively
giving it an 'internal bank' (Zhang, 2003), while the Beijing steel producer, Shougang
Group, was granted the right to start and own a bank, virtually guaranteeing the lifting of
a hard budget constraint (Steinfeld, 1998). The acquisition of IBM's personal computer
business by Lenovo (concluded in 2005) was generally regarded to have been
underwritten by the Chinese government, who at the time held a stake of S 7% in the
company (Business Week, 2004). From this discussion, it appears possible that capital
market imperfections may account for the ease with which both natural-resource-seeking
FDI (typically in energy and raw materials sectors) and strategic-asset-seeking FDI might
have been undertaken by Chinese MNEs during the period of study.
Ownership advantages of Chinese MNEs

There is an argument that emerging economy MNEs have developed ownership
advantages that allow them to operate certain types of activity in foreign countries more
effectively than local firms and industrialised country MNEs. It is a concept related to
cultural affinity provided by local diaspora. It provides certain benefits such as familiarity
with the local conditions, easier access to resources and their control. Where these
conditions are relatively long-lasting then they provide the case for semi-permanent
'ownership advantages' of emerging economy MNEs - the third element of Dunning's
eclectic theory after internalisation and location factors (Dunning, 1993). If these
conditions are met, then market information about the most suitable and profitable
investment opportunities can circulate with ease, and fruitful commercial relationships
can be established that facilitate market entry and development. Investment and
commercial risk can be reduced as a consequence (Lecraw, 1977; Zhan, 1995).
lnstitutional factors influencing Chinese ODI

The institutional fabric of an emerging economy can determine the ability and will of
domestic firms to invest abroad. A straightforward, consistent and liberal policy towards
outward FDI will encourage it, while a discretionary and frequently adjusted policy may
do the opposite. There is an emerging body of theoretical work that concerns the
institution-based view of strategy, or institutional theory for short (North, 1990; Peng,
2002; Meyer and Nguyen, 2005; Wright et al., 2005). This has the potential to help
explain distinctiveness in the behaviour of outward-investing Chinese firms (P. J.
Buckley, J. Clegg, et al. 2007). The basic thrust of this contribution is that firms' strategy
is shaped by the home institutional environment (more colloquially 'the rules of the
game'), which is formally and informally enforced by government and its agents (Scott,
2002) and which bears upon the norms and cognitions that influence investment,
including foreign investment, behaviour.
Given the extent of state control of the Chinese economy (Scott, 2002), the
institutional environment is likely to have had far-reaching and profound effects on the
internationalisation decision of Chinese firms (P. J. Buckley, J. Clegg, et al. 2007). The
author identified several key stages into which Chinese ODI can be divided. It starts with
a cautious internationalisation from the late 70s up to mid 80s with the beginning of the
open-door policy and some initial investment by SOEs abroad. The second stage is from
1986 to 1991 when the government relaxed its policies furthermore allowing joint
ventures and larger capital. Buckley reports a total of 891 projects approved summing a
total of US1.2 billion. The third stage is characterised by an expansion and regulation era
which ended with more oversight after the Asian Financial crisis of 1997. The following
stage is based upon the go-global policy which has already been discussed in previous
chapters. And finally the authors present a final stage identified by the accession of China
to the WTO. Chinese companies are encouraged to look for new markets and a more
decentralised approval process is setup.
This latest stage still prevails and it influences strongly the development, strength
and orientation of Chinese MNEs simply because before the process requires that the
intended ODI follows a set of policy requirements. To illustrate, extant research portrays
Chinese ODI of the 1980s and early 1990s as having been directed by government
towards supporting the export function of stateowned manufacturers; towards providing
stability to the supply of domestically scarce natural resources; and towards the
acquisition of information and learning on how to operate at an international level (Ye,
1992; Zhan, 1995; Liu and Li, 2002). In particular, FDI in the energy and minerals
sectors was encouraged to meet growing needs at home (Lawrence, 2002). In this sense,
China has 'built' sorne of its MNEs, as did Singapore, South Korea and Malaysia (Heenan
and Keegan, 1979; Yeung, 1998; Wang, 2002; Dicken, 2003). FDI, and especially natural
resources oriented FDI, was concentrated by value in the developed countries (Buckley et
al., 2006). There is sorne evidence that latterly Chinese MNEs have internationalised to
gain better access to foreign proprietary technology, strategic assets and capabilities
(brands, distribution channels, foreign capital markets and so forth), often by acquisition;
to exploit new markets; and to diversify business activities in a manner that seeks to
improve their international competitiveness (Taylor, 2002; Deng, 2003; Zhang, 2003,
Buckley et al., 2006). A few cases are the Lenovo purchase from IBM as well as the
Gilly acquisition of Volvo.
This development, which has occurred in conjunction with increasing policy
openness and liberalisation over the period under study (Sauvant, 2005), has seen
Chinese ODI dispersed more widely, especially among the developing countries with
both defensive (import-substituting and quota-hopping) and offensive (developing new
markets) market-seeking FDI increasingly undertaken (Buckley et al., 2006). This is in
addition to the continuance of natural resources oriented FDI, which now increasingly
encompasses developing countries.
Other perspectives put forward include: firm level and industry level antecedents
(long-term strategic considerations), transaction-specific (more ad hoc and project/issue
specific), and institutional factors. The firm-level antecedents of the internationalisation

of Chinese firms, for example, are the focus of scholarly work utilizing the basic strategic
consideration of the firm. This perspective could be embedded into the resource-based
framework. The recent ascendance of the resource-based view (RBV) of the firm
(Barney, 1991) into the studies of the internationalisation of the firms has highlighted the
importance of the firm-specific characteristics as determining factors of the Chinese ODI
(Cui and Jiang, 2009a; Deng, 2007; Rui & Yip, 2008). According to this theory, Chinese
firms such as ALIBABA choose to engage in international activities to enhance the value
or competitiveness of the firm, and their choices largely depend on firm specific
attributes such as size, resources, and experience.
Another well studied theory is the industry-based view (Porter, 1980) which basically
says that the motivation of internationalisation is created by the competitive environment
where the firm operates. In terms of transaction-specific antecedents, several scholars
emphasize the transactional factors that are more ad-hoc and project/issue specific,
compared to the firm- and industry-specific antecedents of the internationalisation of the
firm.
As firm-specific advantages also include transactional advantages, such as firms
capabilities to manage internal and external relationships, Morck et al. (2008) posit that
Chinese SOEs have developed sophisticated measures that help them expand into
economies with similar institutional environment so that they can achieve large returns on
the outward foreign investment. Boist and Meyer (2008) also report that Chinese firms
weight their international activities on the net impact of such actions on the firms
competitive performance and strategy when comparing the relative costs and benefits of
crossing international borders to those of crossing provincial boarders within China.
Finally, research on institutional theory (IT) argues that a firms strategic choices are
fundamentally influenced both formal rules and informal cultural norms and values
domestically and also in host countries (North, 1990; Oliver, 1997; Scott, 2001). Given
the extent of state control of the Chinese economy (Meyer & Peng, 2005; Nolan &
Zhang, 2002), the institutional environment is likely to have had far-reaching effects on
the ICF. Accordingly, scholarly work pays a predominant attention to the influence of
home country institutions and particularly the role of Chinese government (e.g.,
Lieberthal & Herberg, 2006; Wang, 2002; Wong & Chan, 2003).
Current research areas

Ping (2013) made a great contribution to the field of Chinese ODI study by combing
through a large set of papers spaning from 2001 to 2012 in search of the directions into
which the research is leading towards. He finds that theres focus in four main areas on
explaining the behaviour of Chinese ODI decision makers: The Latecomer Perspective;
The Liability of Foreignness; The Role of Government and State and The Dynamics of
Firms and Institutions. At a quick glance we can see that the role of the government and
instutions in the ODI decision takes a major role, implying that several techniques from
Foreign Policy analysis may be suitable for the study of Chinese ODI. The description of
such perspective or areas of research falls outside the scope of this paper, but we make
use of some of the principles outlined by them in the next section when talking about the
model and which variables are necessary for analysing the main factors behind Chinese
ODI in Latin America.
Moreover, It is widely accepted that the support of the governments is a main driver
of the Chinese ODI (XXX). Scholars argue that ODI promotion policies are economically
imperative and institutionally complementary to mitigate the latecomer weakness and
liability-of-foreignness of the Chinese MNCs in global competition. Some argue that the
rapid growth of the ODI is the outcome of the Chinese going-out strategy to serve its
national development priorities (Song, Yang, & Zhang, 2011), no doubt fuelled by
Chinas huge foreign currency reserve, as much as $3.5 trillion at the end of 2012
(Cheung & Qian, 2009).
Finally, when considering a different level of anaysis, albeit the interactions between
firms and institutions when studying their effect on investment strategies, management
scholars advance both institutional and resource-based arguments with respect to strategic
options based on resource, institution, and transaction cost considerations (Luo & Rui,
2009). For example, formal institutional constrains such as weak intellectual property
rights (IPR) and inefficient legal frameworks discouraging Chinese firms investing in
R&D and innovations in China. As such some Chinese firms use OFDI as an alternative
to acquire strategic resources including advanced technologies (Deng, 2009). In addition
some Chinese firms chose to go abroad and invest overseas because the fragmentation of
the Chinese economy imposed high costs to do business across local boundaries (Boisot
& Meyer, 2008). Similarly, international expansion may indicate that more Chinese
MNCs may escape domestic limitations and competitive disadvantages through ODI.
Although current research helps shed considerable lights on how Chinese investors
respond to various institutional constraints, research is lacking on the interactions
between firms and institutions as they jointly influence Chinese ODI (XXX).
A simple theory of Chinese ODI in Latin America

All throughout the chapter we have shown some of the most known academic
postulates that have been written with the intention to understand the motivations behind
Chinese ODI in Latin America. Still there is no consensus about which are the main
elements that interact in the decision making process of ODI in China when investing in
Latin America. That is to say that Chinas ODI behavior has somewhat fallen outside the
general norms of what the traditional theory says about the main impulse behind its
investment decisions.
The different stages of Chinese ODI, as discussed in previous chapters, show that
there is a mechanism by which the Chinese government and economy decide the main
sectors into which it wants to allocate resources. Usually economic theory would guide us
with the principle of maximization of utility but it is clear that such perspective has failed
to account the growth ODI from China has had in the last decade. That is why authors
such as Buckley, Dunning and else have sought to enunciate the guiding principles
behind such investment flows.
In here I simlpy try to enunciate what I believe to be the main factors behind Chinese
ODI in Latin America, a product both of professional experience as well as academic
research. This overly ambitious objective is hopefully the biggest contribution I can make
to the field of study. With that aim in mind I divide this section into 3 subsections. The
first one is a list of basic simplification assumptions. The second one enunciates a few
hypotheses and the third one is a compilation of the expected results.
Assumptions
Consider the Chinese bureaucratic administrative system composed of agents
occupying different posts and already have drafted a policy of promoting local large
companies to go abroad.
Also, take into consideration that those who run large companies, despite sometimes
being a private company, require good relations with the government and its permission
to conduct large-scale business abroad. Also, most large-scale investments in developing
economies are done through state-owned enterprises and usually provide financing at
lower-than-market rates.
The conditions of such permission are that the activity follows into certain
categories, i.e. natural resources, technology, infraestrcuture, and in specific countries or
regions in a mutually beneficial fashion.
Regarding location there are two maxims: the initial operations will run in countries
that China considers as of regional gravitational centers importance. For this we base in
the principles of regional of Professor Su Hao (of the Upssala School of Thought), which
highlights the relevance of regional powers and their circles of influence.
Regarding the areas of investment, they are decided according to the requirements of
the leadership in China and respond in part to the local necessities and conditions of both
host and receiving countries of ODI. For this we base in Dunnings OLI framework.
Hypothesis:
In that fashion, the decision of investment in moderated by the political relations of
the host country and china; and construed by the diplomatic history it has. Addtionally,
given strategic considerations, other variables such as cultural proximity, abundance of
resources, economic background will also influence.
Table 3 Variables, abbreviations, proxies and theoretical foundations
Variable
Var
Proxy
Exp
Theoretic
iable
ected
al
Abbrevi
Sign
Justification
atiohif n
ODI
in
LatAm
ODI
projects in the
Frequency
count
of
host state
ODI Chinese approved investments
Three-way Linear Additive
Composite of 1) state share of
US (National) Fortune 500
companies; 2) state share of
Strategic asset Assets Masters
of Business Degrees Awarded;
Strategic
3) state share of national Utility
Strategic
Assets
SA Patents Registered
+
Asset Seeking
GD
MarketMarket Size P
Gross Domestic Product
+
seeking
Purchasing
GD
MarketPower
PPC
GDP Per Capita
+
seeking
Transactio
Taxes
Tax
Total Taxes
n Costs
Natural
ResourceResources
NR
Raw Material Exports
+
seeking
Dummy variable 1 when
Cultural
CU Chinese long-term popilation
Transactio
Proximity
L
are present, 0 otherwise
+
n Costs
Trade
Country
exports
and
MarketIntensity
TI
imports to China
+
seeking
Unemploym
UN
Percentage of population
+
Efficiency
ent
unemployed
-seeking,
Market-
Geographic
size
GSI
ZE
Labor Cost
LC
Distance
History
diplomatic
relations
Real
Exchange rate
Real
inflation rate
Geographic area km square
DIS
of
DIP
LO
RE
R
RIR
Mean hourly wage of all

occupations
Geographic distance from
Beijing to the capital of the host
state
Number of state or high

level visits
from chinese
officials to the host country
Historical exchange rate of

local currency vs US dollar
Real interest rate of host

country
H1: ODI is positively correlated with
Conclusions
seeking
Marketseeking
Efficiency
-seeking,
Marketseeking
Transactio
n Costs
Strategic
Asset Seeking,
Marketseeking
Transactio
n
Costs,
Marketseeking
Transactio
n
Costs,
Marketseeking
Chapter 4 Modeling Chinese ODI to Latin America

In this paper, we have introduced the context and academics of Chinese ODI in Latin
America. Another natural step would be to present a model into which we could run some
data and examine whether or not the main principles set forth in rpevious chapters hold
under the microscope of statistical management. This chapter aims to present a model
and the main relationships between the constructs and Chinese ODI. Additionally, we
present the main data used a well as the methodology selected for the estimation of the
parameters, which serve as both judge and juror when defining the validity of our claims.
In social sciences, proper theories are based in actual observation of real phenomena and
then disected into concepts, constructs, and hypotheses and so on in order to simplify the
complexity of the real world. By concentrating our efforts in a smaller geographical area,
with a chronological constriction, we might be able to explain in better ways the beahvior
of Chinese investors in Latin America.
This overly ambitious section of the chapter is intended to provide the reader with a
closer view of how we understand the way that Chinese entrepeneurs perceive Latin
America and what motivates them to take the chance in investing in such a far away
region that shares so little cultural similarities and history. In other words, a model
should aim not only to present theory in a more parsimonious way, but reflect as best as it
can different actual events. In this chapter we will include 3 subsections: first one works
as a short abstract mixing theory and context to add certain elements into a more specific
theory of Chinese ODI in Latin America. The second section enunciates the main
hypothesis and constructs from this theory. The final third section will provide a short
reflexion on its shortcomings and guidelines for future research.
A model for Chinese ODI

Learning as we did that the general theory of ODI fails to account for most of the
behavior of Chinese ODI in particular when studying the behavior in developing
economies, then we find some room to create or postulate new relations according to
several more unorthodox concepts that are gaining more and more attention. In this first
subsection we pretend to enunciate a potential relation of variables graphically so as to
guide the reader into which elements consist as the most relevant in our present field of
study.
Let us begin by recapitulating that the different motivations set out in the general theories
still have space in the study of Chinese ODI, but need to be complemented with other
institutional, cultural and governmental elements to beter fit the power of explanation of
the variables. In other words, the specific form of determination of the equation or set of
equations that are to be estimated need to consider ever more contextual complexities that
have seem to have escaped previous quantitative studies in this field of study.
Although industry-based economics is important (Yang, Lim, Sakurai, & Seo, 2009b),
RBT and institutional theory are the two predominant theoretical perspectives in research
on Chinese OFDI. While RBT tends to be the primary theory in analyzing catch-up
strategies and liabilities of foreignness, institutional theory appears to dominate the other
two research streams. However, no theory is sufficient on its own, whatever the area.
TCE or Dunnings eclectic paradigm has been the favoured partner of RBT in explaining
the liability of foreignness (Lau, Ngo, & Yiu, 2010) and catch-up strategies (Bonaglia et
al., 2007), whereas RBT is the primary partner of institutional theory in exploring the
dynamic relations between firms and institutions (Deng, 2009). Regarding the role of the
Chinese state and government, researchers tend to adopt a political economy perspective
to broaden the application of institutional theory (Deng, 2004; Luo et al., 2010). In
identifying specific mechanisms for Chinese investors to overcome liabilities of
foreignness, scholars tend to integrate network theory with RBT (Teagarden & Cai,
2009). Therefore, more work devoted to Chinese outward investment should
draw on the rich insights of other theoretical lenses for understanding this complicated
issue.
Specifically, integrating resource dependence theory (RDT) with RBT could be highly
productive given the dominant state ownership in Chinese overseas investment. RDT
posits that firms depending significantly on external resources will attempt to minimize
or neutralize this dependence (Pfeffer, 1993; Pfeffer & Salancik, 1978). Because these
two theories show complementary focuses on resources, integrating them may show how
organizations achieve a competitive edge and reduce environmental uncertainties
simultaneously by specifying resource needs internally and obtaining them externally
(Hillman et al., 2009). We need a richer understanding of specific resources that different
levels of Chinese government bring to a firm, as well as their motivation and ability to
contribute to the firm. For example, does resource dependence influence catch-up
strategies? If so, what type and to what extent? Researchers may further explore how
extensively Chinese internationalization relates to government dependence and analyze
the stages of a Chinese firms international engagements in which external resources are
most beneficial. Corresponding to the different resources that M&As bring to a firm,
scholars may examine how specific types of M&As may be more or less valuable as
government factors change. Furthermore, organizations may use political means to alter
the external environment, actively creating their own favourable environment by trying to
shape government policies.
Integration of RDT and institutional theory may prove equally enlightening because of
their different levels of analysis. At its foundation, institutional theory builds on several
macro perspectives (e.g., formal regulations, informal rules, or social isomorphism). As a
micro-level approach, RDT contends that organizations are constrained by a network of
interdependencies with institutions, and that employees rely on their team members to
perform successfully (Hillman et al., 2009; Pfeffer, 1993). Therefore, the micromacro
conceptualizations of RDT and institutional theory share a focus on reciprocal
relationships for managing external interdependencies and generating successful
performance. Search for the theoretical synergies between institutional legitimacy and
forms of resource dependency may offer new insights into Chinese OFDI and contribute
to the overall body of knowledge. For instance, scholars may consider parallels between
exploitation and exploration at the firm level and impetus and restraints at the
institutional level that may emulate similar forces frequently studied in terms of firm
actions.
Also, as the two theories share some common assumptions regarding strategic options but
emphasize the socially embedded context of firms, it could be fruitful to explore more
nuanced relationships between internal/external resources and performance.
Another potential theoretical lens for integration involves institutional theory and
stakeholder theory because of their similar emphases. Both theories recognize the firms
interdependence on external environments (institutions) and internal contingencies
(stakeholders). Research in stakeholder theory has been refined to explain which
stakeholders take precedence in different settings (Mitchell, Agle, & Wood, 1997), and
that might be a constructive frame of reference for institutional scholars. Emerging
economies, particularly China, are not homogenous (Morck, Yeung, & Zhao, 2008).
Instead, institutions are significantly different at national, provincial, and local levels.
Studying regional differences within China would enhance our understanding of
important nuances. Unfortunately, studies are almost exclusively on central governmental
influences; subnational institutional influences on Chinese OFDI have not been
considered. By combining institutional theorys recognition of the multiplicity of
institutions with insights from stakeholder theory regarding stakeholder importance, we
could obtain greater insights into how national and regional institutional factors influence
Chinese MNCs in their overseas engagements and differentiate which institutions take
precedence if multiple governmental agencies co-exist.
The complex interplay between Chinese firms and their institutional setting requires
robust approaches. Juxtaposing RBT and institutional theory with other important
theories, especially with RDT, may depict this complicated interaction more realistically,
and may also realize new applications of both RBT and institutional theory in the context
of Chinese OFDI featuring dominant state role and ownership.
Review of previous quantitative studies of Chinese ODI
We believe that there is much to learn in this field by understaning what other scholars
have done in the past, especially when considering quantitative studies. For the best of
our knowledge, there are few empirical studies on the determinants of Chinas ODI.
Empirical work on the factors that determine FDI patterns has focused primarily on the
effect of government policies and macroeconomic phenomena, such as exchange rates
and taxes. Most of these studies motivate their analyses with a partial equilibrium model
of firm behavior (Blonigen 2008).
Specific works include Buckley et al. (2007) whom using panel data on Chinas OFDI to
49 countries from 1984 to 2001, found countries with poor institutions and abundant
natural recourses tend to attract more FDI from China since 1992. Another guiding paper
is Cheung and Qian (2009) who based data on Chinas ODI to 31 countries, found that
acquiring resources was one of the main motivation of Chinese firm internationalization
while the role of host country institutions as measured by country risk was not
significant. Cheng and Ma (2008) also studied the determinants of Chinas ODI based on
similar panel data estimation while using actual ODI data for 90 host countries over 2003
2006. They found that countries neighbouring China, with ports, larger GDP, closer to
China and having greater cultural proximity to China will attract more ODI from China.
More recent studies by Kolstad and Wiig (2012) provides some new findings on
determinants of Chinas ODI, which emphasizes that the effect of resource endowment
on attracting Chinas ODI depends on quality of institutions of host country. All these
above mentioned empirical studies use the Chinas yearly aggregated ODI at national
level by dividing it into subgroup with each host country. Such data allows researchers to
focus on the role of some country-specific characteristics on Chinas ODI such as host
countrys resource endowment, quality of institutions, market size as well as some
bilateral economic indicators such as trade volume between two countries.
Model specification and SEM

Most of the previous studies of the determinants of ODI have been based on a regression
in the form of the following equation;
Equation 1
n
ODI i= 0+ j x ij + i
j=1
where ODIi is outward direct investment flows into country i and xji the jth explanatory
variable of country i. These studies report a sample of regressions, including a certain set
of explanatory variables. The problem is, as we have seen from previous chapters, that
theory (particularly the theory of FDI) is not adequately explicit about the variables that
should appear in the true model. The following problem is often encountered: x1 may
be significant when the regression includes x2 and x3, but not when x4 is included. So,
which combination of all available xjs do we choose? Most, if not all, of the existing
studies report the most appealing or convenient regression or regressions after
extensive search and data mining, typically to confirm a preconceived idea (Moosa and
Cardak 2006).
In order to build up the model and test the impact of the determining variables on FDI the
structural equations modeling (SEM) as developed by Jreskog (Jreskog 1970), and
extended by Goldberger & Duncan (Goldberger and Duncan 1973) was applied. SEM is a
powerful technique that can combine complex path or simultaneous equation model and
it includes confirmatory factor analysis and regression models.
The particular advantage of SEM is involving latent variables and as a result
investigating causal theories as they pertain directly to the underlying constructs of
interest, rather than to the measured variables whose observed relations are often
attenuated by error of measurement.
Many researchers consider SEM to be a second-generation statistical tool following
multiple regression, factor analysis, and path analysis. Goldberger (Goldberger 1973)
outlined three situations in which multiple regression falls short of structural equations:
when the observed variables contain measurement errors and the interesting relationship
is among the true variables; when there is interdependence or simultaneous causation
among the observed response variables, and when important explanatory variables have
not been included in the analysis.
As another advantage SEM enables researchers to answer a set of interrelated research
questions by modeling the relationships among multiple independent and dependent
constructs simultaneously. This capability for simultaneous analysis differs greatly from
most first generation regression models which can analyze only one layer of linkages
between independent and dependent variables at a time. Hence instead of testing the
hypothesized relationships one by one, by applying SEM all the relationships among the
model are tested simultaneously (Bollen 1989).
In addition, by applying SEM measurement error in the process of model building can be
identified, estimated and then removed and by estimating and removing measurement
error, the reliability of multiple indicators can be explicitly calculated within the analysis
and more importantly the intricate causal networks enabled by SEM characterize realworld processes better than simple correlation-based models. Therefore, SEM is more
suited for the mathematical modeling of complex processes to serve both theory and
practice (Dubin 1976), (Gefen, Straub et al. 2000).
Current economic literature has moved away from the random-effects model because of
its stringent assumptions (the unobserved determining factors are uncorrelated with other
observed independent variables, which are unlikely to be true). Therefore, the randomeffects estimates can be efficient but biased; the fixed-effects estimates can be inefficient
but consistent. The Hausman test also shows that there are significant differences
between the fixed-effects specification and the random-effects specification; as such we
will rely on the fixed-effects estimates for our interpretations and discussions, in
comparison with the traditional OLS estimates.
Market-seeking variables
As suggested by the theory, ODI in nearby regions is the most common location for
market-seeking affiliates in the case of most developing countries ODI. However, in the
case of Chinese ODI in Latin America, given the issues of proximity, this strategy is less
relevant. However, when the decision of market entry is made, we believe that for the
case of the regional economies, Chinese MNEs have propensed to find economies that
provide higher chances of growth. Buckley adds that trade-supporting reasons for ODI
include distribution networks, the facilitation of exports of domestic products, and to
enhance exports from the home country to other large and rapidly growing markets. Since
market-seeking strategies are often correlated positively with large markets, engagement
of Chinese MNEs in large, foreign markets may particularly be explained by market
seeking motivations (Buckley et. al., 2007).
Hypothesis 1: The relative market size of a host country is positively associated with
Chinese MNE ODI flow in Latin America.
Hypothesis 2: Trade intensity with China by the host country is positively associated with
Efficiency seeking variables

Most scholars agree that given the low production costs in China, efficiency-seeking
motivations do not play the prime role for Chinese MNEs going global (Buckley et. al.,
2007, p. 501). However, a few examples may point to growing role of efficiency
motivated Chinese ODI in the years to come (Gugler and Boie 2008).
Hypothesis 3: Unemployment in the host country is positively associated with Chinese
MNE ODI flow in Latin America.
Hypothesis 4: Taxes in the host country are negatively associated with Chinese MNE
ODI flow in Latin America.
Resource-seeking variables
ODI in natural resources can be undertaken by firms which are themselves based in the
primary sector, or those from other sectors, mainly natural-resource-related such as metal
manufacturing (UNCTAD WIR, 2006). Because of the strategic importance of securing
supplies of resources for the home economy, a large proportion of Chinese MNEs
engaged in these efforts are state-owned.
Hypothesis 5: The level of natural resource endowments of a host country is positively
associated with Chinese MNE ODI flow in Latin America.
Strategic asset-seeking variables

This type of behavior occurs when firms invest abroad in order to create, sustain or
maintain their competitive position, often by acquiring, in whole or in part, the
proprietary assets of another, foreign company (Dunning and Lundan 2008).
Hypothesis 6: The level of strategic assets in a host country is positively associated with
Figure 1 Proposed model under SEM with Latent Variables estimation technique
MACRO-ECONOMIC LEVEL
INTERNATIONAL
RELATIONS
AND POLITICAL LEVEL
ORGANIZATIONAL LEVEL
CHINESE MNE
History of diplomatic
relations
HOST COUNTRY
JOINTLY
Growth
rate
Cultural
proximity
Real
exchange
rate
Natural
Resources
Trade
intensity
Real
inflation
rate
Chinese
ODI in
LatAm
Strategic
Resources
Market Specific
conditions:
Labor price, geographic
size, distance,
unemployment, purchase
capacity, taxes
Proposed model and hypothesis
Data
Chinas outward foreign direct investment (OFDI) has been increasing rapidly since
2005, reaching US$90 Billion in 2013. With its dynamic growth and frequent news
coverage on cross-border mergers and acquisitions made by Chinese enterprises,
academic interest towards Chinas OFDI is increasing. Cheng and Ma (2010),
Ramasamy, Yeung, and Laforet (2012), and Wang, Mao, and Gou (2014) have made
interesting analyses on Chinas OFDI. The common problem faced by the scholars on
Chinas OFDI, however, is the lack of reliable data. It is true that the Ministry of
Commerce, National Bureau of Statistics, and State Administration of Foreign
Exchange publish a detailed Statistical Bulletin of Chinas Outward Foreign Direct
Investment every year, but the Bulletin offers only a poor perspective of what is
actually happening in Chinas OFDI. The 2011 Bulletin, for example, shows that 33.5
percent of OFDI stock at the end of 2011 belonged to the leasing and business
service sector, while only 6.3 percent was in the manufacturing sector. It also shows
that 61.6 percent of OFDI stock was in Hong Kong, followed by British Virgin
Islands (6.9 percent). The Bulletin seems to lump together all cross-border merger and
acquisition investments in various sectors in leasing and business service and report
only the first stop of Chinas OFDI, which in most cases further migrate from Hong
Kong and British Virgin Islands to their final destinations.
To offer a clearer picture of Chinas OFDI, Wang, Mao, and Gou (2014) attempted to
compile OFDI statistics by themselves on the basis of project approval information
acquired from the Chinese government. They report that 52 percent of OFDI (in value
terms) made by Chinas large firms went to mining and 23 percent went to
manufacturing, and 64 percent went to manufacturing in the case of small and
medium private firms. They also show that Australia was the most important
destination of OFDI by large firms, followed by South Africa, while in the case of
small and medium-sized private firms, Vietnam was the most important destination,
followed by the United States. Their description seems to be closer to the reality of
Chinas OFDI than the Bulletin.
This report is another attempt to clarify the reality of Chinas OFDI on the basis of
official approval information. Although our data lacks the information on investment
value, we believe that the rich data provided in this report will shed light on
previously undiscovered aspects of Chinas OFDI.
Data source
1
2
To understand the details of Chinas OFDI, we constructed an affiliate-level OFDI
dataset with industry- and function-classification. The original dataset is downloaded
from a website of Department of Outward Investment and Economic Cooperation,
Ministry of Commerce, the Peoples Republic of China (http://fec.mofcom.gov.cn/).
More precisely, there is Firm Search (Qiye Jiansuo in Chinese) pages in that
website which providing a search engine named Cross-border Investment Firm List
(Jingwai
Touzi
Qiye
(Jigou)
Minglu;
http://wszw.hzs.mofcom.gov.cn/fecp/fem/corp/fem_cert_stat_view_list.jsp).
This official dataset contains 28,542 overseas affiliates and branches of Chinese firms
(including Foreign-invested or Joint-Venture firms) approved during 1970 to 2013,
and has rich information including the destination of OFDI, the name of the investor
in China, the name of affiliate or branch, descriptions on the function of the affiliate,
regional origin of the investor, and approval date of OFDI. As for the regional origin
of investors, they are classified into 31 provincial-level regions, 5 large cities (Dalian,
Ningbo, Xiamen, Qingdao, and Shenzhen), Central State Owned Enterprises (Central
SOEs), and Ministry of Commerce SOEs (MOC SOEs). This division is basically the
same with the Bulletin. Though the Bulletin does show the number of affiliate at
aggregated-level, our dataset can provide more detailed knowledge like origindestination cross tabulation and changes in long time-series.
At the same time, this affiliate-level dataset has limitations. First, the dataset does not
contain investment value. We can only know the number of affiliates and branches
established by Chinese firms. Second, the dataset lacks industry classification and
operation function classification. To overcome the second limitation, we classified
each case based on the procedures shown in the next section.
Availability of micro-level data has been an issue for the literature as well. Testing
theories of firm-level models with industry- or country-level data requires strong
assumptions about firm characteristics. While firm-level data is being employed more
often in recent work, much of the literature has examined more aggregate data
(Blonigen 2008).
The dependent variable of the analysis model is OFDI, defined as the total amount of
OFDI flow (in 1,000 Chinese Yuan). As reported by Boisot and Meyer (2008),
Chinese firms gauge their international actions by estimating the comparative
advantages of the firm's regional versus international investments. That is to say,
Chinese firms will make more OFDI when the costs of crossing international borders
are relatively smaller than the costs of crossing China's provincial borders. In line
with this argument, we will estimate the effects of following independent variables on
OFDI, which include human capital factors, institutional factors, while controlling for
various firm characteristics including firm ownership and high-tech intensity. Table 1
reports the distribution of OFDI values, from which we could see that most of the
firms do not invest overseas. Given the distribution of our dependent variable, both
Probit and Tobit models have been used. For 86 firms (or 12.3%) with positive OFDI
2
3
values, 9 of them invest overseas every year during 2008 to 2010, 12 of them invest
overseas for two of the three years, while the remaining 35 firms only invest once in
one of the three years. The average value of OFDI for the sample is 4.23 million
RMB. Not surprisingly, the high-tech product sales account for 76.7% of total product
sales for the firms. On average, there are about 90 technological personnel in each of
the firms, among them, one is a Chinese returnee, and another in a foreign expert
imported from overseas. The average age of the firm is 12 years and has about 2
patents on average. About 42.7% of the firms are located in the High-tech
Development Zone. In terms of ownership, 72.4% of the firms are privately owned,
8.7% are state-owned or state-controlled, followed by 7.6% collectively owned, 6.2%
foreign invested, and 5.2% of firms are invested by Hong Kong/Taiwan/Macau
interest. The average value of the firm fixed assets is 68 million RMB, the value of
the intangible assets is around 9.9 million RMB. The tax exemption rate for the
sample is around 15% while the rate for the tax reduction that goes to technology
transfer is 7.2%.
Institutional Factors According to institutional theory, firms strategic choices are
fundamentally influenced by formal rules and informal norms as well as values that
are both domestically and in host countries (North, 1990; Oliver, 1997; Scott, 2001).
Influence of both the host and home country institutions on firms internationalization
is discussed by numerous studies (Wang, 2002; Wong and Chan, 2003; Lieberthal and
Herberg, 2006; Cheung and Qian, 2008; Buckley et al., 2007; Kolstad and Wiig,
2012). The richness of firm-level data in the study allows us to investigate the impact
of more specific policy, such as tax exemption policy for high-tech firms. In
Particular, we included two variables, Taxreduction, or proportion of general tax
reductions (total amount of tax exemption / (total amount of tax paid + total amount
of tax exemption)) and TechTaxRed, or proportion of tax reductions aiming R&D and
technology transfer ((tax exemption for high-tech firms + R&D tax exemption +
technology transfer tax exemption)/ total amount of tax exemption). Such policies
broadly support enterprise development and encourage investment in R&D. As such
their effects on OFDI and firm internationalization may well be muted.
Estimation Method
Sample size:
Section 3: SEM Assumptions

3.1 A Reasonable Sample Size
Structural equation modeling is a flexible and powerful extension of the general linear
model. Like any statistical method, it features a number of assumptions. These
assumptions should be met or at least approximated to ensure trustworthy results.
3
4
According to James Stevens Applied Multivariate Statistics for the Social Sciences, a
good general rule for sample size is 15 cases per predictor in a standard ordinary least
squares multiple regression analysis. Since SEM is closely related to multiple
regression in some respects, 15 cases per measured variable in SEM is not
unreasonable. Bentler and Chou (1987) note that researchers may go as low as five
cases per parameter estimate in SEM analysis, but only if the data are perfectly wellbehaved (i.e., normally distributed, no missing data or outlying cases, etc.). Notice
that Bentler and Chou mention five cases per parameter estimate rather than per
measured variable. Measured variables typically have at least one path coefficient
associated with another variable in the analysis, plus a residual term or variance
estimate, so it is important to recognize that the Bentler and Chou and Stevens
recommendations dovetail at approximately
15 cases per measured variable, minimum. More generally, Loehlin (1992) reports the
results of Monte Carlo simulation studies using confirmatory factor analysis models.
After reviewing the literature, he concludes that for this class of model with two to
four factors, the investigator should plan on collecting at least 100 cases, with 200
being better (if possible). Consequences of using smaller samples include more
convergence failures (the software cannot reach a satisfactory solution), improper
solutions (including negative error variance estimates for measured variables), and
lowered accuracy of parameter estimates and, in particular, standard errors SEM
program standard errors are computed under the assumption of large sample sizes.
When data are not normally distributed or are otherwise flawed in some way (almost
always the case), larger samples are required. It is difficult to make absolute
recommendations as to what sample sizes are required when data are skewed,
kurtotic, incomplete, or otherwise less than perfect. The general recommendation is
thus to obtain more data whenever possible.
3.2 Continuously and Normally Distributed Endogenous Variables SEM programs
assume that dependent and mediating variables (so-called endogenous or downstream
variables in SEM parlance) are continuously distributed, with normally distributed
residuals. In fact, residuals from a SEM analysis are not only expected to be
univariate normally distributed, their joint distribution is expected to be joint
multivariate normal (JMVN) as well. However, this assumption is never completely
met in practice. SEM specialists have developed a number of methods to deal with
non-normally distributed variables. These methods are designed for variables that are
assumed to have an underlying continuous distribution
Exploratory factor analysis suggested the elimination of several variables. Exchange
rate, inflation, gdp per capita showed little explanatory capability of the ODI variable
despite changing or restricting its participation in the model in different ways such as
transformations using logaritms or growth rates.
5
For the estimation of the model, validation of the measurement model was carried out
by eliminating those coefficient that have a p-value of less than 0.5 and those how
show the highest volatily.
Model Estimation Results
Notes for Model

Computation of degrees of freedom (Default model)
Number of distinct sample moments:
54
Number of distinct parameters to be estimated:
38
Degrees of freedom (54 - 38):
16
Result (Default model)

Minimum was achieved
Chi-square = 68,921
Degrees of freedom = 16
Probability level = ,000
Variable Summary
The model contains the following variables
Observed,
endogenous
variables
NatExp
Strategic
ODI
Observed,
exogenous
variables
Trade
Visits
Unemp
Compen
Taxes
GDP
Unobserved,
exogenous
variables
e1
e2
e4
Variable counts
Number of variables in your model:
Number of observed variables:
Number of unobserved variables:
Number of exogenous variables:
Number of endogenous variables:
Weights
Covariances
12
9
3
9
3
Variances
Fixed
3
0
0
Labeled
0
0
0
Unlabeled 5
15
9
Total
8
15
9
Number of distinct sample moments:
Number of distinct parameters to be estimated:
Degrees of freedom (54 - 38):
Means
Intercepts
Total
0
0
6
6
0
0
3
3
3
0
38
41
54
38
16
Estimation results
Scalar Estimates
Maximum Likelihood Estimates
Strategic
ODI
ODI
ODI
ODI
<--<--<--<--<---
Trade
Visits
NatExp
Strategic
Trade
Estimate
,001
2,084
,000
-,001
,000
6
S.E.
,000
1,272
,000
,000
,000
C.R.
11,571
1,638
-,695
-6,067
27,532
P
***
,101
,487
***
***
Covariances: (Group number 1 - Default model)

Estimate
1,316,080,04
4
,044
-,660
,277
-563,028,101
-6,967
10,786
-94,843
-7,384
676,918
1,642,439
-1,570,242
223,327
-58,483
-3,145
S.E.
C.R.
127,568,899
10,317
***
,135
,543
,749
579,962,109
2,862
3,896
16,114
23,611
3,225
247,531
186,125
43,432
34,271
7,932
,330
-1,216
,369
-,971
-2,435
2,768
-5,886
-3,127
,210
6,635
-8,436
5,142
-1,706
-,396
,741
,224
,712
,332
,015
,006
***
,002
,834
***
***
***
,088
,692
Visits
<-->
Trade
Unemp
Compen
Taxes
Unemp
Unemp
Unemp
Compen
Compen
Taxes
Taxes
Compen
Unemp
GDP
GDP
<-->
<-->
<-->
<-->
<-->
<-->
<-->
<-->
<-->
<-->
<-->
<-->
<-->
<-->
Visits
Visits
Visits
Trade
Compen
Taxes
Taxes
Trade
Trade
GDP
GDP
GDP
Trade
Visits
Model
Default model
Saturated model
Independence
model
NPAR
38
54
CMIN
58,921
,000
DF
16
0
P
,000
CMIN/DF
2,908
1,137,439
45
,000
25,276
Model Fit
CMIN
The CMIN model fit result give the model still needs much work as the value is near
3 meaning that the variance of the variables lack good explanatory value.
Baseline Comparisons
Model
Default model
Saturated model
Independence model
NFI
Delta1
,939
1,000
,000
RFI
rho1
,830
IFI
Delta2
,953
1,000
,000
,000
TLI
rho2
,864
,000
CFI
,952
1,000
,000
The baseline coparison fit evaluation shows promising results as the value is
above0.95
7
RMSEA
Model
RMSEA
Default model
,090
Independence model ,245
LO 90
,069
,233
HI 90
,113
,258
PCLOSE
,001
,000
The results of the RMSEA say that the sample needs to be enlarged as the value is
above 0.60, meaning that the p-value is significant.
Further research on the estimation would show that despite having some positive
results on the model and its specification, there is a large number of tests and
variations that would be benefitial for the estimation of the model. A next step would
be the variance analysis in order to correct the disturbance generated in the model. For
that we could for instance group variables by type of conutries or generate modulating
variables.
Conclusion
Chapter 5 Analysis and General Conclusions
10
Works Cited
UNCTAD WIR. World Investment Report. New York and Geneva: United
Nations Press, 2006.
Zhan, J. X. "Transnationalization and outward investment: the case of Chinese
firms." Transnational Corporations, 1995: 67-100.
Zhang, Qingmin. China's Diplomacy. Beijing: Sinopedia Series, 2010.
Anderson-III, J. R. Foreign direct investment from China to developed
economies: do extant conceptual and policy frameworks explain the cross-border
investment behaviour of Chinese MNEs? Durham University, 2014.
Buckley, P. J., Jeremy Clegg, Adam Cross, Xin Liu, Hinrich Voss, and Ping
Zheng. The Determinants of Chinese Outward Foreign Direct Investment. Journal
of International Business Studies,, 2007: 499-518.
Buckley, P. J., L. J. Clegg, A.R. Cross, and X. Liu. "The Determinants of Chinese
outward foreign direct investment." Journal of International Business Studies, 2007:
499-518.
Blonigen, Bruce. "Foreign Direct Investment." The New Palgrave Dictionary of
Economics, 2008.
Dunning, J. H., and S. M. Lundan. "Institutions and the OLI paradigm of the
multinational enterprise." Asia Pacific Journal of Management, 2008: 573593.
Deng, P. "Chinese Outward Direct Investment Research: Theoretical Integration
and Recommendations." Management and Organization Review, 2013: 513539.
Deng, P. "The Internationalization of Chinese Firms: A Critical Review and
Future Research." International Journal of Management Reviews, 2012: 408427.
Gugler, P, and B. Boie. "The Emergence of Chinese FDI: Determinants and
Strategies of Chinese MNEs." Emerging Multinationals : Outward Foreign Direct
Investment from Emerging and Developing Economies. Copenhagen: Copenhagen
Business School, 2008. 32.
Kedia, B., N. Gaffney, and J. Clampit. "MNEs and Knowledge-seeking FDI."
Management International Review, 2012: 155173.
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Understanding Investment by Chinese SOEs in Latin America - Juan Pablo Dominguez

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Title

Understanding Investment by Chinese

(Juan Pablo Dominguez)

Understanding Investment by Chinese

is the case in developing economies?

Source: World Resource Institute, 2015.

China, Latin America, Multinational Enterprises, Outward Direct Investment,

CHAPTER 2 CHINAS POLITICAL VIEW TOWARDS LATIN

Chinas foreing policy and Latin America

CHAPTER 3 A THEORETICAL APPROACH TO CHINAS ODI

The chinese case of ODI

Current research areas

A simple theory of Chinese ODI in Latin America

CHAPTER 4 MODELING CHINESE ODI TO LATIN AMERICA 45

Review of previous quantitative studies of Chinese ODI

Model specification and SEM

PROPOSED MODEL AND HYPOTHESIS

MODEL ESTIMATION RESULTS

Economic and political Links

Figure 2 Trade with China, 1995 - 2013 (US Billions)

such as the US.

Table 2 Chinese State visits to Latin America (By Country)

"lifting China-Mexico ties to a

Agreements to cooperate on commercial

China-Mexico Permanent National Commission

Yang Jiechi (MFA)

$400M loan from China to CR

To demonstrate China's strong willingness to

Yang Jiechi (MFA)

"promoting cooperation between the Asian

8th China-Colombia intergovernmental

10 economic accords signed

Signed the China-Colombia Economic and

Investment and trade deals

Poverty reduction fact finding trip

Increase ties in defense sector

Security assistance (weapons & training) signed

Investment and trade deals

China signed more than 70 cooperation documents

China signed more than 70 cooperation documents

Investment and trade deals

To demonstrate China's strong willingness to

2nd BRIC Summit

China signed more than 70 cooperation documents

Yang Jiechi (MFA)

Investment and trade deals

9 cooperation agreements signed (agriculture,

Pledged to foster their trade ties and to step up

Chapter 2 Chinas political view towards Latin

Chinas foreing policy and Latin America

Current status and the Zouchuqu (Going-out) strategy

investment with those states whose relationship is much improved as a consequence of

Financing and investment

Chapter 3 A theoretical approach to Chinas ODI in

Extant theories of foreign direct investment

Market seeking ODI

Efficiency seeking ODI

Strategic asset-seeking ODI

internationally known, quality producer with a portfolio of latest technologies and

The chinese case of ODI

Unbalance in the access to Capital and distorted Capital

Ownership advantages of Chinese MNEs

lnstitutional factors influencing Chinese ODI