Analysis Of The Economic Factors Of China’s Foreign Direct Investment Location

Facing the trend of economic globalization, foreign direct investment is animportant way for Chinese enterprises to actively participate in international divisionof labor and to enhance their own competitiveness. Furthermore, investment locationchoice is key to the success of enterprises’ direct investment. The paper selected40host courtiers which Chinese enterprises to direct investment in for the sample. Weinvolve GDP of the host country, the bilateral trade volume, the wage level of the hostcounties, agglomeration effects and exchange rate from2003to2010as explanatoryvariables and empirical analyze China’s outward foreign direct investment locationchoice determinants by fixed effects analysis.Followed by a series of theoretical and empirical analysis, we found that the hostcountries’ GDP, the volume of bilateral trade, wage levels, agglomeration effects andexchange rate factors affected China’s OFDI location choice significantly.In detail, China’s OFDI is negatively related to GDP of the host countries’. Inother word, the larger size of the market, the less direct investment by Chineseenterprises. Moreover, China’s OFDI mainly aimed at consolidating the market.Meanwhile, the bilateral trade volume and China’s OFDI was a positive correlation sothat there is a complementary between foreign direct investment and export trade.Secondly, the currency exchange rates of the host countries (indirect quotation) alsoplay a role in promoting China’s OFDI. Once again, China’s OFDI was positivelycorrelated with the wage level of the host countries. This results is conflict with thegeneral analysis that enterprise’ direct investment is in order to pursue a lowerinvestment cost. This reflecting the demand for China’s enterprises to enhance theircompetitiveness and the trend of reverse investment (developing countries invest thedeveloped countries). Finally, the agglomeration effects also was positively correlatedwith China’s OFDI, that the more pre-absorption of direct investment in the hostcountry, the greater attraction of enterprise. This is a reflection of primary for China’sOFDI.According to the above findings, we put forward four policy recommendationsfor the future of China’s OFDI location. First of all, to increase investment in thedeveloped countries and regions. Second, taking the countries and regions which owngreat potential and rapidly growth of economic development as the investment focus, Third, focusing consider the location choice of the “agglomeration effects”. Fourth,actively break through the barriers to trade.