Impact Of Country Risk On China’s OFDI

By the end of2012, as China’s strategy of "going out " implementing, China’s outward foreign direct investment (OFDI) total amount increases to the level which has been covered all over the world179countries (regions), accounting for76.8%, with the multiple needs to seek stable strategic resource supply, expand overseas markets, and adjust the industrial structure. It is widely distributed in most kinds of industries, concentrating on seven long-term strategic industries, such as mining energy industry, manufacturing industry, leasing and business services, financial services, transportation, construction and wholesale. China’s outward foreign direct investment has got enormous development and becomes the one of three big foreign investment countries in the world by the end of2012. As our country’s enterprises widely participating in the global economy, the internationalization of Chinese enterprises is more vulnerable to the impact of the global economy and political structure, and gets closed to the situation of different countries’individual economy and politic in specific projects. Because of lacking experience in overseas investment, Chinese enterprises’OFDI is facing the host country risks in the complicated and changeable international business environment.Country risk is based on the sovereignty of the host country’s consciousness and behaviors, originates from the possibility of loss leading from the different political, economic environment, social cultural difference, force majeure and other potential factors. China’s OFDI started later than the western developed countries, in order to avoid with the developed country competition in the early stages of China’s OFDI, Chinese enterprises OFDI started in developing countries or less developing countries which have lots of risk factors, mainly in the energy, mining industries. Although the changing of the world economic situation, especially after the2007financial crisis, hindered the development of the global economy, it provided an opportunity for Chinese OFDI that Chinese companies were more access to the manufacturing industry, service industry, financial industry. Therefore, the country risk have been greatly pushed Chinese OFDI in certain circumstances which contradicts the traditional view. In this case, the study on the country risk and its influence to China’s OFDI will have important practical significance. The paper uses empirical study and normative study to analyze the present status of China’s OFDI, country risks’impact, and the relationship between China’s OFDI and the country risk, in order to provide the corresponding recommendations and policies of China’s OFDI according to the host country risks.The full paper is divided into six parts.The first part is the introduction that clarifies the research background, research significance, the innovation and research methods, research framework.The second part is the literature review. The paper states the meaning of risk, country risk and OFDI, the affecting factors of OFDI those three aspects from the perspective of the country risk.The third part is the present situation of China’s foreign direct investment. Through the chart, this part clearly shows the2004to2012, China’s OFDI stock and flow, and OFDI flow and stock relative to global OFDI ratio. Secondly, this part analyzes the distribution of enterprise structure, regional structure and industry of China OFDI.The fourth part is the analysis of country risk case of China’s OFDI. By combining the third part and arranging the cases impeded by the country risks of100projects in the period of2004to2011, the paper researches the ownership structure, industry structure, national distribution and investment motives through data analysis in order to make the summary of the enterprises that are prone to country risk, the state (area), industry and investment motives. At the same time, the analysis of these data provides the scientific basis for the selection of index for quantitative analysis in fifth part.The fifth part is the empirical analysis of China’s foreign direct investment. The analysis uses China and its61investment host countries’panel data of political risk, economic risk index and the index of financial risk indicators as explanatory variable expedition of China OFDI, select the key factors which affect OFDI as the control variables. The results show that the host country’s political risk and economic risk is negatively correlated with the OFDI, while the financial risk during the inspection time in this model has positive relationship with OFDI, which has a promoting effect on China’s OFDI.The sixth part is the policy recommendations. According to the quantitative analysis of case in the fourth part and data analysis in the fifth part, this part puts forward policy recommendations in a targeted manner from the government level and enterprise level to Chinese enterprises to cope with the country risk from the host country.