A Study On Political Risk Of Chinese Esource-seeking Outward Foreign Direct Investment

Resource-based Chinese outward foreign direct investments (OFDI) have occupied large share of total OFDI amount in the past years, many of them have hit a huge trading volume. Because China is in the rapid development stage, the acceleration of demands and governments’action on reserving strategic resources worsen the contradiction between China and host countries, which may suffer from the protectionist policies and lead to greater political risk. Therefore, the topic of this paper is important for Chinese government to speed up the OFDIs from local companies.Researches on the relationship between political risk and OFDI have focused on two directions:political risk analysis on location choice and investment behavior on policy-making process. Insights and theoretical background of both directions are complementary and supportive. However, each of them follows closely with only one facet of political risk study-systematic risk assessment or special behavior/strategy analysis, while integrating characteristics of receiving and investing parties are not included in either comprehensive approach yet. Further, perspective included host country, multinational corporations (MNCs), and home country also lacks evidence to prove how the interactions among the three parties influence the generation and change of political risk. Therefore, this thesis first defined political risk used as follow based on the two directions above, and then by investigating the interactions between systematic political risk based on view of institutions and special political risk based on view of behavior, sequentially developing several studies below:Study1modeled the decision-making process of three OFDI parties given simultaneous existence of systematic and special political risk. Established on a two-country model with un-equivalent natural resource distribution, the author introduced mean-variance expected utility and common agent method to characterize preference of investor and both governments, respectively. This study found that, not only political risk aroused by institutional environment couid influence OFDI, but the preference of host government (such as political contributions) might change the path of political risk; therefore, policy tools about investment compensation used by home country/government could effectively improve the possibility of successful investment.Following the fundamental work of study1, study2took the quality of public governance by host government as a measure of political risk to analyze how political risk of host country and policy tools of home country interactively influenced the location choice and success rate of MNCs. Based on integrated view of three parties and data of cross-border mergers and acquisitions (M&As) deals, this study controlled market behavior of MNCs for better understanding the impact of political risk and policy tools on success rate of Chinese M&As. The evidence identified main results in study1. As lower political risk in the host country, especially higher quality of good governance, more OFD1would flow in, as well as higher investment success rate. Meanwhile, policy tools of home country would affect location choices and enhance investment success rate.After theoretical demonstration and empirical analysis, main object of study3is to make explicit utility of the risk analysis framework above. This study integrated political institutions, binary political relations, and specific resource properties to demonstrate the structure and performance of political risk. Study3first combined individual studies of institutional quality and distance with measures of political institution and bilateral political relations, respectively, to constitute formulation and performance of country risk. Second, focusing on special risk of investment mark (such as oil-related resource risk). the author introduced national strategic investment (e.g.. Chinese Economic corporation investment). referring to its policy and resource-based background, to describe the formuianon and dispersis meananism o(?)efic risK. Based on (?). a reasonable assessment and prediction system of OFD1political risk for Chinese oil-related corporations.In study4the author carm(?) ased on (?) esper(?). China National Offshore Oil Corporation (CNOOC) and Aluminum Corporation of China (CHINALCO) to investigate political risk management strategies. Further, important political events happened in after-negotiation poriod are discussed. The study argued that managers should assess and manage political risk of resource-based OFDI from systematic political risk and special political risk. Results highlighted that objective resource, host government, external stakeholders, and negotiating strategy played key role in OFDIs, which lent MNC managers and policy makers some empirical insight for future practice.