The Influence Of Political Risk And Cultural Distance On Location Choice Of China’s OFDI

Since “the Belt and Road” initiative was proposed by General Secretary Xi Jinping in 2013,Chinese enterprises have conducted cooperation and exchanges with a number of countries along the Belt and Road on public infrastructure,agriculture,economy and finance,with an increasing number of cooperation projects involving an increasing amount of investment.The vigorous development of “the Belt and Road” initiative provides a good opportunity for Chinese enterprises to "go global",and also helps enterprises from all over the world to compete,cooperate and communicate.It is a platform beneficial to the development of the whole world.However,government corruption,imperfect laws,war and turmoil,cultural gap,communication friction and other investment failures emerge one after another.Based on this,this paper takes the Belt and Road Initiative as the background,summarizes and analyzes the situation of China’s direct investment in countries along “the Belt and Road”,and studies the specific impact of the political risk of host countries and the cultural distance between China and the countries on the location choice of Chinese enterprises when they invest abroad through empirical analysis.Firstly,this paper reviews relevant literature on the influence of political risk and cultural distance on OFDI location choice,and draws on previous research methods and ideas.Secondly,this paper describes the current situation of China’s OFDI,and analyzes the specific effects of political risk and cultural distance on Chinese enterprises’ OFDI from the perspective of influence mechanism.On the basis of the above theoretical and practical analysis,this paper uses gravity model as a tool and panel data of 51 Belt and Road countries as the basis for empirical analysis.At the same time,countries along“the Belt and Road” are further classified according to the level of economic development,and empirical research is carried out respectively.Since China’s direct investment in the countries along show the characteristics of the uneven distribution among regions and empirical studies are conducted at regional levels,respectively South Asia,southeast Asia,west Asia,north Africa,central Asia and Europe and Oceania.The empirical results show that :(1)In general,political risk has a negative effect on China’s investment along the belt and road;The greater the cultural distance,the more unfavorable China’s direct investment in the host country.(2)China’s investment in “the Belt and Road” initiative is heterogeneous among different types of countries,China’s OFDI tends to choose developed countries with little political risk,while the investment in developing countries is not affected by cultural gap and political risk.(3)The sub-indexes of political risk have different influences on Chinese enterprises’ investment in different locations.The investment in south and southeast Asia pays more attention to the stability of government and the effectiveness of supervision,while the investment in west Asia and north Africa pays more attention to the perfection of legal system and the realization of responsibility.Finally,based on the empirical results,some policy suggestions are put forward to avoid political risk and reduce cultural distance.At the government level :(1)Establish a sound interest protection system for overseas enterprises and a sound crisis warning system.(2)Governments should strengthen exchanges and contacts to help Chinese enterprises invest in countries along the "Belt and Road" from the legal level.At the enterprise level :(1)Fully study the political risk of the host country before investment,and improve the awareness of risk prevention and the ability to deal with risks.(2)Promote cultural exchange and carry out cross-cultural training for employees.