Geoeconomic determinants for foreign investments: A quantitative study of potential national strategic objectives of Chinese investments to Europe using firm-level data

Abstract

In this thesis, I examine potential geoeconomic determinants for the location choice of non European investments to the EU28 and EFTA-countries. Over the past decade, Chinese outward FDI has tripled. With that comes growing accusations that their investments are used to reap national strategic (geopolitical) returns. The allegations do not only come from nationalist or protectionist politicians, but is also supported by governments, national security bodies, and academics. Although the claims vary in degree of explicitness and justification, most suggest that the investments are not fully commercially driven – often pointing at high-profile cases and other anecdotal evidence. Still, there has for long been a lack of screening and control mechanisms for foreign investments. For this reason, I asked myself: are there support of these allegations in large-scale European microdata of firm ownership? I start by translating these broad allocations into a narrower research question. To be able to answer this, I conceptualize six hypotheses that could suggest geoeconomic pull motives, which I operationalize into testable variables. More precisely, I test whether Chinese investments seem stronger associated with majority ownership, technology, market power, highly concentrated markets, and critical infrastructure – compared to other non-European investors. For examining these hypotheses, I have developed a sophisticated dataset, using longitudinal firm-level data from Orbis. For my study, I use a dual-method approach. First, I examine China’s investment strategy, formulated using the method of Babic et al. (2019). I compare China’s strategy to that of other major non-European countries, as well as the average of all non-European investors. Second, I develop a unique econometric model estimated using random effects, testing the investments’ intensive margin. Combined, and with all the methodological limitations I problematize, my study strongly favors the majority ownership and the critical infrastructure hypotheses. In addition, it provides non-conclusive partial support and disapproval for the market power and the technology hypotheses, respectively. Overall, when comparing with other extra-European investors, China is stronger associated with certain potential geoeconomic characteristics. Although interesting, the results cannot be concluded as meaningful, causal, and generalizable, or whether they are linked to the government’s strategic (geoeconomic) objectives. Rather, the findings should be viewed as an attempt to examine investment characteristics that may, but do not necessarily, imply national strategic objectives. I will argue that my assignment contributes to enhancing our understanding of motives for foreign investments in Europe. Especially as empirical studies of geoeconomic determinants are still a relatively uncharted territory, it can provide new ideas on how to approach such questions.