中國在中東歐地區的投資動機 - 政大學術集成

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(1)國立政治大學亞太研究英語碩士學位學程 International Master‟s Program in Asia-Pacific Studies College of Social Sciences National Chengchi University. 碩士論文. 立. 政治大 Master‟s Thesis. ‧ 國. 學. Motivations for Chinese investment in the region of. ‧. Central and Eastern Europe. y. Nat. n. al. er. io. sit. 中國在中東歐地區的投資動機. Ch. engchi. i n U. v. Student: Ondrej Machacek Advisor: Prof. Tsai, Chung-Min. i.

(2) 中華民國 105 年 6 月 June 2016. 中國在中東歐地區的投資動機 Motivations for Chinese investment in the region of Central and Eastern Europe 研究生： Student: Ondrej Machacek 指導教授： Advisor: Prof. Tsai, Chung-Min. 學. ‧ 國. 立. 政治大國立政治大學. ‧. y. n. Ch. e nAgThesis chi. sit. io. al. 碩士論文. er. Nat. 亞太研究英語碩士學位學程. i n U. v. Submitted to International Master‟s Program in Asia-Pacific Studies National Chengchi University In partial fulfillment of the Requirement For the degree of International Master in Asia-Pacific Studies ii.

(3) 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v.

(4) 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. iii. i n U. v.

(5) Acknowledgments Upon finishing this thesis I feel greatly indebted to a number of individuals who have proved to have become an essential part of my work for without their help this paper could have only hardly reach such a level of quality. Firstly, I am most grateful to my supervisor Prof. Tsai, Chung-Min, Ph.D., currently a director of International Master‟s Degree in Asia-Pacific Studies, at National Chengchi University, Taipei, Taiwan. His guidance, constructive remarks and immaculate willingness to simultaneous help at any point of my work greatly enhanced its quality. The suggestions of my committee members, prof. Leng and prof. Lin were equally valuable. Secondly, I wish to express great appreciation to everyone with whom I had. 政治大 most concerned helped立 remarkably to understand this matter.. the chance to discuss this issue. A number of informal discussions with individuals. ‧ 國. 學. Last but not least, long-lasting and unceasing support of my surroundings, especially my family and friends, was but the most important thing that have led and allowed me to finish this paper.. ‧. n. er. io. sit. y. Nat. al. Ch. engchi. iv. i n U. v.

(6) Abstract. Chinese economic presence in the region of Central and Eastern Europe has attracted a lot of attention recently. The establishment of the so called 16+1 initiative four years ago, calling on increase of mutual economic exchange is often believed to be a Chinese bid to increase its political power in Europe by economic means. Media coverage, certain EU representatives and researchers became rather aware of Chinese investment projects in this region. However, what are the real aims this OFDI? Does the rationale to invest in CEE differ from motivations to invest elsewhere? Or are Chinese motivations different from investors from other countries?. 政治大 decision to invest in this 立 region by correlation analysis and while interpreting the This work will try to analyze the most important determinants of Chinese. ‧ 國. 學. results, those will also be investigated along with other peer studies to dis/prove current theories on China‟s FDI; and to compare China‟s rationale to invest in CEE with motivations to invest elsewhere.. ‧ y. Nat. n. al. er. io. sit. Keywords: Foreign Direct Investment; China; Central and Eastern Europe; 16+1; Motivation analysis. Ch. engchi. v. i n U. v.

(7) 摘要. 中國經濟現形於中歐與東歐近期備受關注。16+1 合作機制在四年前開始發起，號召增進雙方經濟交流往往被視為中國藉由經濟管道，嘗試提升其在歐洲的政治力量。媒體報導，特定歐盟代表以及研究學者有意識到中國在此地區的投資計畫。然而，OFDI 真正的目的是什麼? 抑或中國的動機和其他國家的投資者有所不同? 這篇研究會透過相關分析，試著分析中國決定在這個地區投資的最重要決定因素，同時解讀結果。這些結果也會和其他同行研究做深入探討，來駁斥. 政治大. 或是證明現今中國 FDI 的理論；還有比較中國的投資 CEE 的基本原則和其投資. 立. 其他地區的動機。. ‧ 國. 學. 關鍵字: 外商直接投資；中國；中歐以及東歐；16+1 合作機制；動機分析. ‧. n. er. io. sit. y. Nat. al. Ch. engchi. vi. i n U. v.

(8) List of Abbreviations and Acronyms. CEE. Central and Eastern Europe. CEFC. China Energy Company Limited. CIS. Commonwealth of Independent States. EFTA. European Free Trade Association. EU. European Union. EUR. Euro (currency). FDI. Foreign Direct Investment. GDP. Gross Domestic Product. MOFCOM. Ministry of Commerce, People‟s Republic of China. RMB. y. Research and Development Chinese Yuan (currency). io. Small and Medium Enterprises. al. n. SME. Nat. R&D. People‟s Republic of China. sit. PRC. Official Foreign Direct Investment. ‧. OFDI. One Belt One Road. Ch. er. OBOR. ‧ 國. M&A. 學. MNC. 治政 Mergers and Acquisitions 大立 Multinational Corporations. i n U. v. SOE. State-owned Enterprises. UNCTAD. United Nations Conference on Trade and Development. UNDP. United Nations Development Programme. US. United States. USD. American Dollar (currency). V4. Visegrad 4 (Czech Republic, Hungary, Poland, Slovakia). WB. World Bank. WGI. World Governance Indicators. engchi. vii.

(9) Content 1.. Introduction ............................................................................................................ 1. 2.. Research Methods .................................................................................................. 4 2. 1. Framework ........................................................................................................ 4 2. 2. Hypotheses ......................................................................................................... 5 2. 3. Methodology and data ...................................................................................... 12 2. 4. Research problems ........................................................................................... 14. 3.. Theoretical Perspectives ....................................................................................... 16. 4.. Chinese Investment in Central and Eastern Europe ............................................. 23 4. 1. The investment development ........................................................................... 23. 政治大 5. Motivation Analysis ............................................................................................. 35 立 5. 1. Culture closeness .............................................................................................. 35 4. 2. The position of EU ........................................................................................... 32. ‧ 國. 學. 5. 2. Openness to FDI ............................................................................................... 38 5. 3. Technology acquisition .................................................................................... 40. ‧. 5. 4. Mutual Trade .................................................................................................... 43. y. Nat. 5. 5. Export of given country.................................................................................... 44. io. sit. 5. 6. Political proximity ............................................................................................ 46. n. al. er. 5. 6. 1. Serbia ........................................................................................................ 49. i n U. v. 5. 6. 2. Czech Republic ......................................................................................... 50. Ch. engchi. 5. 6. 3. Hungary .................................................................................................... 51 5. 6. 4. Poland ....................................................................................................... 51 5. 7. Market size ....................................................................................................... 54 5. 8. Logistics ........................................................................................................... 56 5. 9. Unproved motivations ...................................................................................... 58 5. 9. 1. Education .................................................................................................. 58 5. 9. 2. Governmental Stability ............................................................................. 59 5. 9. 3. Market development ................................................................................. 59 5. 9. 4. Labor cost ................................................................................................. 60 5. 9. 5. Ease of Doing Business ............................................................................ 61 5. 10. Motivations omitted ....................................................................................... 61 viii.

(10) 5. 11. Discussion of the results................................................................................. 63 5. 11. 1. The Role of EU ....................................................................................... 66 6.. Comparison with other regions............................................................................. 68. 7.. Conclusion ............................................................................................................ 76. References .................................................................................................................... 80 Appendix One: Correlation analysis in graphs ............................................................ 86. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. ix. i n U. v.

(11) List of Charts Chart 1: The Stock of China's investment in CEE 2006-2014 .................................... 26 Chart 2: Geographical Distribution of China Investment Stock, total amount 123, 1 Billions of USD............................................................................................................ 26 Chart 3: Chinese Investment in Europe (Billions of USD).......................................... 27 Chart 4: Geographical distribution of China's investment in CEE - colored map of CEE .............................................................................................................................. 28 Chart 5: Correlation coefficient of China‟s OFDI stock with number of Chinese residents ....................................................................................................................... 86 Chart 6: Correlation coefficient of China‟s OFDI stock with absolute net inflows of FDI ............................................................................................................................... 86. 政治大. Chart 7: Correlation coefficient of China‟s OFDI stock with nominal amount of hightechnology exports ....................................................................................................... 87. 立. ‧ 國. 學. Chart 8: Correlation coefficient of China‟s OFDI stock with absolute amount of mutual trade ................................................................................................................. 87 Chart 9: Correlation coefficient of China‟s OFDI stock with country‟s total exports. 88. ‧. Chart 10: Correlation coefficient of China‟s OFDI stock with political proximity ..... 88 Chart 11: Correlation coefficient of China‟s OFDI stock with GDP size ................... 89. Nat. io. sit. y. Chart 12: Correlation coefficient of China‟s OFDI stock with Logistic Performance Index ............................................................................................................................ 89. n. al. er. Chart 13: Correlation coefficient of China‟s OFDI stock with Education Index ........ 90. i n U. v. Chart 14: Correlation coefficient of China‟s OFDI stock with Governmental Stability Index ............................................................................................................................ 90. Ch. engchi. Chart 15: Correlation coefficient of China‟s OFDI stock with GDP per capita .......... 91 Chart 16: Correlation coefficient of China‟s OFDI stock with labor costs ................. 91 Chart 17: Correlation coefficient of China‟s OFDI stock with Ease of Doing Business Index ............................................................................................................................ 92. x.

(12) List of Figures Figure 1: Research flow-chart ........................................................................................ 4 Figure 2: List of Motivations, Proxies and Sources ..................................................... 14 Figure 3: The Stock of China's investment in CEE 2006-2014 ................................... 25 Figure 4: CEE countries of the "16+1" formula and their affiliations with the EU and NATO .......................................................................................................................... 32 Figure 5: Results of proved motivations with their correlation coefficients ............... 35 Figure 6: Results of disproved motivations with their correlation coefficients ........... 58. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. xi. i n U. v.

(13) 1. Introduction. Purpose of this research is to shed light on the motivations of Chinese investment in the region of Central and Eastern Europe (CEE). Although to some this may be a very vague definition of a geographic area, China made sure on its own over what 16 countries are in the game by introducing the China-CEE 16+1 Cooperation platform. While some argue that Chinese investment is linked to political support of Beijing, others claim that economic factors are the main rationale for Chinese enterprises growing out of China. Other possible reasons tackled in this study may play equally. 治政 great potential gains. It is has become a new market大 with great economic perspectives on its own but it could,立 more importantly, assume the strategically important role of a important role. The way China has perceived the region of CEE was in the terms of. ‧ 國. 學. gate and an export platform to the rest of EU. Indeed, its special position stems from its nature of politically stable environment, where economic development has not. ‧. reached its Western neighbors and hence offers a great comparative advantage.. y. Nat. The literature on Chinese investment abroad and its special nature has recently. sit. grown into the state of abundance. Various studies have been following China‟s path. er. io. to become a net capital exporter which China did last year. Since the People‟s. al. n. v i n perspectives lag beyond theCcurrent of affairs. Indeed, researchers have been h e nstate gchi U. Republic of China (PRC) is still considered to be a developing country, theoretical eager to understand, explain and predict China‟s investment models. These tries, however, were only partially successful. The most important reason seems to be the fact, that sectoral distribution of China‟s official foreign direct investment (OFDI) differs both spatially and temporally. Indeed, the thesis of gradual partial reorientation from natural resources through market-seeking behavior to high-tech asset-seeking is now generally well accepted.1 While China was seen to be investing in resource-rich – and developing – countries ten years back, now tertiary sector in developed countries has become an equally important target.. 1. Korniyenko, Y. and Sakatsume, T., “Chinese Investment in the Transition Countries,” European Bank for Reconstruction and Development, Working paper no. 107, January, 2009.. 1.

(14) The most common approach of papers to determine China‟s OFDI rationale has become the correlation and regression models of Beijing‟s motives. This is a field of study this paper is not only sourcing on, but into which it has the potential to contribute with its own findings. Indeed, while some studies are general, some focus on regional and case studies and some on systemic factors, few such analyses have been carried out in the instance of China‟s engagement in the CEE. Historically speaking, China paid little attention to this region after the end of the Cold War. Although the China-CEE 16+1 cooperation platform has been established some 4 years ago, it still keeps a rather low profile and did not receive as much coverage as Chinese moves elsewhere. These political moves and growing economic engagement, nevertheless, attract a lot of attention especially within the. 政治大 that, growing importance 立of Chinese foreign direct investment (FDI) in this region is. target region itself. Beijing‟s hope to engage in CEE is clearly perceivable. And with. ‧ 國. 學. getting more obvious in response.. Naturally, many local researchers paid close attention to this phenomenon,. ‧. trying to describe the process, find possible impacts on regional economies, etc. Their approaches have been, nevertheless mostly descriptive and qualitative in their nature.. y. Nat. sit. Studies on this issue may be considered only preliminary as these do not always go. al. er. io. for in-depth analysis as they rather opt for simple description of the phenomenon.. n. Although some studies do tackle related connotations, few of them have yet paid. Ch. attention to the motivation analysis.. engchi. i n U. v. Views on Chinese OFDI in this region generally differ. Some welcome the opportunity to tap Chinese money, some remain wary of Chinese political interests. Some argue that this new Chinese initiative means an unprecedented growth of investment, some stress that the actual amount is still less than negligible. The purpose of this paper is indeed to fill in the research gap in the field by clarifying the quantitative determinants of China‟s OFDI in this region, while explaining and interpreting the results in qualitative terms. Such an approach should cast away misconceptions and misunderstandings in this field that would often lead to distorted views of reality, so often brought about by media coverage.. 2.

(15) By the same token, this research will also help to dis/prove contemporary views on this issue, as it will apply the discussed theories and approaches onto a region that has not yet been previously studied in this way. Explaining what is the real motivation of Chinese investment in CEE and why these motivations prevail may not only fill the gap in the academic research, but may also serve as a good guiding tool for further political decisions, as it will either show what the Chinese investors are interested in the most, or that rather than economic logic, political interests lead the Chinese course. Eventually, this work hopes to reach these three ultimate goals: 1) To find what are the most important Chinese motives to invest in CEE and to offer. 治政大 another piece to the academic Chinese OFDI with other regions; and 3) To provide 立 OFDI; especially by dis/proving some of the suggested discussion on China‟s foreign explanation why these motivations play this role; 2) To compare CEE as a target of. ‧. ‧ 國. 學. io. sit. y. Nat. n. al. er. motives. Ch. engchi. 3. i n U. v.

(16) 2. Research Methods. 2. 1. Framework The logical framework of this paper is as follows: 1) current state of affairs will be analyzed, and then 2) theories will be discussed; 3) these will provide for variables to carry out quantitative analysis; 4) results of these correlation and models will be interpreted with regard to the current state of affairs and theoretical implications; 5) these results will be also compared with other studies to further check the validity of existing theoretical frameworks. Research framework does not, for better coherence, fully correspond with the content of this thesis.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. Figure 1: Research flow-chart. 4. v.

(17) 2. 2. Hypotheses Following section will provide an overview and basic interpretation of the factors that will be studied to find rationale for Chinese investment in the region of CEE. These are numerous and hence each one will be represented by the most suitable and best measurable proxy in the way suggested in respective sections. While there are theoretically already well-established sets for OFDI investment motivations, these either stem from grounded theories (such as Heckscher and Olin Model; General ODI Theory by Buckley and Casson, etc.), or have been drawn to be used in casual type of investment relations. While the former approach would limit this study to only given variables and would not allow for their variation. 政治大. better reflecting our case, the latter is struggling with shortage of theoretical understanding of developing countries‟ investments abroad. Hence, in the case of. 立. Chinese investment in CEE, while a number of motivations have been previously. ‧ 國. 學. studied in different cases, this research will omit (such as natural resources-seeking behavior). On the other hand it will include the consideration of Chinese goals in this. ‧. region and will thus extend the set of possibly plausible motivations taking into account region‟s own nature.. y. Nat. sit. The hypotheses part as well as the methodological approach in most cases. er. io. follow the studies that will be briefly analyzed and compared to in one of the. al. v i n although with mixed results brought an extensive palette of possible Chave U h e already i h n c g rationale for Chinese investment abroad; and second, only similar academic approach n. following sections. There are two main reasons for such a decision. First, these works,. will allow for comparison with their findings. This section will first introduce the motivations that are going to be analyzed and later on will explain why some of the traditional variables were left out. For better orientation these have been ordered according to the results of statistical correlation with Chinese FDI.. 5.

(18) Culture closeness A number of studies have convincingly proved that better cultural knowledge and people-to-people relations do facilitate trade and investment. The same applies to studies conducted on China, working with population of ethnic Chinese in respective countries. Although these numbers of Chinese residents in the region are almost negligible, they still may pose a strong correlation with the inflow of FDI. While in certain countries the Chinese population is very low, no official data were found. This study will hence only work with the data found available, omitting a few countries from the list.2 . Hypothesis 1: Chinese OFDI is positively associated with the high number of ethnic Chinese living in respective countries. 立. Openness to FDI. 政治大. ‧ 國. 學. While there is a discussion whether political support or Chinese cost-benefit analysis. ‧. is the driving force behind investment in this region, it is important to have a look at host countries general openness to FDI inflow.3 Hence overall ratio of inward FDI. Nat. sit. y. stock to country‟s gross domestics product (GDP) will suggest if the general policy. io. er. attitude have an effect on the investment from China.4 In this model I simply argue that the more FDI any given country has received, the bigger amount of investment. n. al. will naturally also come from China. . Ch. engchi. i n U. v. Hypothesis 2: Chinese OFDI is positively associated with absolute net stock of inward FDI. Technology acquisition Many students of Chinese of investments are wary of the true Chinese interest, suggesting that Chinese motives are not only to increase revenue and diversify. 2. Latham, K. and Wu, B., Chinese Immigration into the EU: New Trends, Dynamics and Implications, Europe China Research and Advice Network, London, 2013 and National Statistical Offices. 3 The World Bank, “Foreign direct investment, net inflows (BoP, current US$),” 2016, (accessible from: http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD) 4 Buckley, P. et al, “The Determinant of Chinese Outward Foreign Direct Investment,” Journal of International Business Studies, Vol. 38, Issue 4, pp 499-518, July 2007.. 6.

(19) markets, but also to gain access to high-tech industries, advanced manufacturing techniques and new inventions. After acquisition of such knowledge and related know-how, these are believed to either transfer the production or create similar business in China. Whereas these are speculations fueled mainly by the lack of transparency of Chinese investments abroad, or by unclear links between Chinese corporations and its government, we should bear in mind, that such behavior is not limited to Chinese (state-owned) enterprises. Technology, distribution channels, managerial skills and other added-value know-how is a great asset that firms from developing countries lack. Such an investment is hence a way to obtain strategic factors of production rather than to obtain immediate business opportunities.5 While this motivation is hard to measure,. 政治大 such technological and 立 know-how advantages that could become targets of investment; researchers follow in Ramasamy‟s footsteps.6 He suggested two proxies to measure. ‧ 國. 學. one of which I will use as well. It is the “ratio of technology exports to total exports of. the host country”. 7 This approach may, however, bring undesired distortion. As technology exports may fall into production chains with finalizing activities often. ‧. based in third countries such as Germany. Hence subsidiary proxies were measured as. y. sit. n. al. er. Hypothesis 3: Chinese OFDI is positively associated with host country’s advanced technology and know-how. io. . Nat. well.8. Trade with China. Ch. engchi. i n U. v. Another “gravity model” assumption is the relative importance of mutual trade these countries enjoy with China. Here I suggest that the higher economic exchange the better connections both sides share, facilitating the snow-ball effect by triggering. 5. Yin, W., “Motivations of Chinese outward foreign direct investment: an organizing framework and empirical investigation,” Journal of International Business and Economy, Vol. 16, Issue 1, pp 82-106, 2015. 6 Ramasamy, B., et al, “China‟s outward foreign direct investment: Location choice and firm ownership,” Journal of World Business, Vol. 47, Issue 1, pp 17-25, January 2012. 7 The World Bank, “High-Technology exports (current US$),” 2016 (accessible from: http://data.worldbank.org/indicator/TX.VAL.TECH.CD). 8 The World Bank, “ICT goods exports (% of total goods exports),” 2016 (accessible from: http://data.worldbank.org/indicator/TX.VAL.ICTG.ZS.UN).. 7.

(20) further cooperation. This motivation may hence be embodied in the sum of export and import with China.9 . Hypothesis 4: Chinese OFDI is positively associated to the amount of mutual trade. Export of given country Since many researchers suggest that the main reason for Chinese economic presence in the region of CEE is to build a production base in the comparably less developed (read cheaper) part of Europe while being at the same time at close distance from potential big markets further West, international trade in absolute terms should be a. 政治大 economic growth suggests better connection to the world economy and potential 立 good guiding tool for Chinese investors. Higher reliance on exports as a part of. markets. Such supply chains may be just the reasons for decision to invest in related. ‧ 國. 學. countries. The sum of export and import divided by GDP will serve as proxy. 10 Hypothesis 5: Chinese OFDI is positively associated with the total amount of host country export. ‧. . sit. y. Nat. n. al. er. io. Political proximity. i n U. v. Commentators widely suggest that rather than economic calculations, it is politics that. Ch. engchi. prevails when cooperating with China. Or – more clearly – Chinese economic presence is correlated with international support of China. This would suggest that countries criticizing China in the terms of human rights, territorial disputes and other issues could be found on the bottom of the list. Since there have been studies that have looked into respective countries‟ political stances on China, we can prove whether this assumption is true. Proxies measured will be results of previous studies on this topic.11. 9. Michigan State University, “globalEDGE,” 2016 (accessible from: http://globaledge.msu.edu/). Michigan State University, 2016. 11 Liu, Z., “The Analysis of China‟s Investment in V4,” pp 24-37 in Mráz. S. and Brocková, K. (eds), Current Trends and Perspectives in Development of China – V4 Trade and Investment, Visegrad Fund, Bratislava, 2014; Fox, J. and Godement, F., “A Power Audit of EU-China Relations,” European Council on Foreign Relations, April 2009. 10. 8.

(21) Liu Zuokui, from the Chinese Academy of Social Sciences was able to come up with a set of bilateral relationship indicators suggesting differences in the quality and depth in China‟s relations with respective countries. Taking into account Bilateral strategic level (treaties), Top-leaders mutual visits, Mutual perceptions between public, Signing the investment or trade agreement and The Degree of mutual dependence with each other in individual regions, he came up with a scale this paper tries to correlate to the actual amount of investment stock.12 Another proxy for political proximity would traditionally be the number of high-level bilateral visits that has been proved to have positive relationship with investment flows. The problem, however, is that China somewhat lumped up all of the 16 countries together and is ever since the establishment of the China+CEE. 政治大. cooperation group meeting with all of their representatives and this proxy is hence difficult to measure.13. ‧ 國. 學. . 立. Hypothesis 6: Chinese OFDI is positively associated with better political bilateral ties. ‧ sit. y. Nat. Host market size. io. er. While the general assumption suggests that markets with higher gravity would be, due to better economic and trade opportunities more appealed to each other, such gravity. n. al. i n U. v. theory may be also explained as a drive to find bigger markets that would raise the. Ch. engchi. demand for produced goods and services. Hence investment abroad would be done in the expectation of revenues growth simply because of higher number of potential customers. Diversification of markets as a safety measure could be understood as another potential reason for such a decision. Previous studies14 have used mainly GDP. 12. Liu, Z., in Mráz. S. and Brocková, K. (eds), 2014, p. 28. It should be, nevertheless, taken into account that this piece of work was done back in 2014 and hence does not need to be reflecting current state of relations perfectly. The case of Czech Republic may serve as a good example. 13 Nitsch, V., “State Visits and International Trade,” World Economy, Vol 30, pp 1797-1816, 2007 as in Matura, T., “China-CEE Trade, Investments and Politics,” UACES 45th Annual Conference Paper, Bilbao, Spain, September 2015, p. 22. 14 Yin, W., 2015.. 9.

(22) and GDP per capita as proxies to measure this rationale, this work will follow their suit with the former one.15 . Hypothesis 7: Chinese OFDI is positively associated with the host market size.. Logistics Development theories generally put a huge emphasis on the building of infrastructure that would facilitate all-around economic activity in the region by restrains that could foreign investors seen as limiting their potential gains. The logic hence goes that the better infrastructure, the more appealing as an investment destination because of. 政治大. transaction costs, better reach to sources and markets etc. While this may still be a problem within China itself today, it is a rationale difficult to measure in more. 立. developed areas. Since infrastructure is not measured only in physical terms, we may. ‧ 國. 學. use access to knowledge facilitation as a suitable proxy. Use of internet, for example, boosts not only the exchange of information, but also the efficiency of the trade itself. ‧. with a number of reasons.16 The proxy to measure the logistics is the WB Logistics Performance Index.17. y. Nat. io. sit. Hypothesis 8: Chinese OFDI is positively associated with high infrastructure development level in the host country. n. al. er. . Education. Ch. engchi. i n U. v. Supposing a transnational company wants to invest abroad setting up a new research and development center or is just in a need of well-educated staff. Education Index will serve as the basic proxy.18 . Hypothesis 9: Chinese OFDI is positively associated with high education. 15. The World Bank, “GDP at market prices,” 2016 (accessible from: http://data.worldbank.org/indicator/NY.GDP.MKTP.CD). 16 Yin, W., 2015., it should be noted, however, that other studies do use different proxies, such as percentage of internet users, etc. 17 The World Bank, “Logistics performance index,” 2016 (accessible from: http://data.worldbank.org/indicator/LP.LPI.OVRL.XQ/countries/1W?display=default). 18 UNDP, “Education Index,” Human Development Reports, 2015.. 10.

(23) Governmental Stability Stable political environment implies that invested money will not come in vain in the long-term. Risk assessment would suggest that no sensible investment could be made in country undergoing political turmoil. There has been an academic discussion whether Chinese investments are flowing into countries with strong rule of law that would protect this allocation of money or rather into countries where governmental control is lacking in vigor. Whereas some scientists argued that there is no such a correlation, others suggested a division between Chinese investment in developing and developed countries. 19 While countries like Hungary were under the Orbán‟s leadership able to attract considerable amount of Chinese money, the notion that weaker political stability is more appealing for Chinese investment may be correct.. 政治大 measures such as Corruption 立 Perception Index and Rule of Law Index will be used as. Proxy measured will be World Governance Indicator’s Stability Index.20 Subsidiary. ‧ 國. . 學. well.21. ‧. Hypothesis 10: Chinese OFDI is positively associated with stable political environment. y. Nat. er. io. sit. Market Development. Market development measured by GDP per capita could suggest that more developed. n. al. i n U. v. countries might be bigger consumers of China‟s goods.22 Indeed as Huawei, ZTE and. Ch. engchi. other Chinese corporations are investing abroad they are likely to look for rich markets. Although such development might also imply higher labor costs, it is worth checking. . Hypothesis 11: Chinese OFDI is positively associated with high GDP per capita. 19. Ramasamy, B. et al, 2012. The World Bank, “Worldwide Governance Indicators,” 2015 (accessible from: http://data.worldbank.org/data-catalog/worldwide-governance-indicators) 21 Transparency International, “Corruption Perception Index,” 2016; World Justice Project, “Rule of Law Index,” 2015. 22 The World Bank, “GDP per capita,” 2016 (accessible from: http://data.worldbank.org/indicator/NY.GDP.PCAP.CD) 20. 11.

(24) Labor cost Although it may seem ridiculous that developing countries would go international – and especially into developed regions in order to save money on production costs, its relative differences within the region itself are not completely negligible and may still be an important factor when deciding where to invest. I hence suggest that the labor cost does have an influence on the inflow of OFDI.23 . Hypothesis 12: Chinese OFDI is positively associated with lower labor costs. Ease of doing business. 政治大. Business background is another important factor. From the red tape when setting up business to the taxation, these are all very important when deciding where to invest.. 立. This work will take into account the comprehensive “Ease of Doing Business” Index,. ‧ 國. . 學. and a subsidiary proxy of Taxation as well.24. ‧. Hypothesis 13: Chinese OFDI is positively associated with Easy to Do Business environment. y. Nat. sit. 2. 3. Methodology and data. n. al. er. io. Methodology of this paper will be multi-fold, reflecting the research purpose of each section of the paper.. Ch. engchi. i n U. v. The initial introductory chapters discussing current theories of China‟s OFDI, and China‟s presence in the region of CEE will resort to complementary literature and its review as a main source of information. The analytical part of this study will, however, use quantitative data to carry out Pearson‟s correlation analysis to find out which of the suggested hypotheses play a significant role when deciding on the target country for Chinese investment.. 23. Data of each National Statistical Office as collected by Wikipedia (accessible from: https://en.wikipedia.org/wiki/List_of_European_countries_by_average_wage). 24 World Bank Group, “ Doing Business 2016: Measuring Regulatory Quality and Efficiency,” Washington, 2016.. 12.

(25) Although this quantitative analysis may be a good way to obtain numerical results, these do not have to be necessarily explanatory enough to draw up the reasons for such results. Their interpretation will provide for the qualitative part of this thesis. Last but not least, it will compare these findings with other peer studies and discuss mutual similarities and differences; and finally the conclusion will turn back to dis/proving contemporary theories on China‟s FDI. The data collection plan plays a very important role which would prevent the paper resulting in “rubbish in rubbish out” study. Firstly, this study will analyze thirteen possible motivations for Chinese investment in the region of CEE. To increase validity of the finding, some of these motivations had to be measured by. 治政大are mentioned in the footnotes. tackle, but where considered necessary, more proxies 立. more variables. There are hence all together 13 motivations this study is going to. ‧ 國. 學. Also, while there is a plethora of ways to measure China‟s OFDI, each of the. data sets has been challenged by more or less serious imperfections and distortions.25 This study will make use of the most common data sets from Chinese Ministry of. ‧. Commerce (MOFCOM). The stock of China‟s OFDI in respective countries will. sit. n. al. Culture Closeness Openness to FDI. Technology Acquisition Mutual Trade Export. Proxy. er. io. Motivation. y. Nat. hence serve as the dependent variable. The list of independent variables is as follows:. Sources. v i n CNumber residents National Statistical Offices; other h eofnChinese gchi U Absolute FDI stock Amount of high-technology exports Amount of ICT goods export Amount of trade with China Chinese imports Amount of exports. 25. World Bank Development Indicators. World Bank Development Indicators globalEDGE, University of Michigan globalEDGE, University of Michigan. By FDI, this work will refer to OECD definition: “FDI is defined as cross-border investment by a resident entity in one economy with the objective of obtaining a lasting interest in an enterprise resident in another economy. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the direct investor on the management of the enterprise”. OECD Factbook 2013: Economic, Environmental and Social Statistics, OECD, 2013 (accessible from: http://www.oecd-ilibrary.org/sites/factbook-2013en/04/02/01/index.html?itemId=/content/chapter/factbook-2013-34-en).. 13.

(26) Political Proximity. Bilateral Political Proximity Index. Liu Zuokui (2014)26. Market Size. Gross domestic product. World Bank Development Indicators. Logistics. Logistics Performance Index. World Bank Development Indicators. Education. Educational Index. Human Development Reports, United Nations Development Programme (UNDP). Governmental Stability. World Governance Indicator‟s (WGI) Stability Index WGI Rule of Law Index Corruption Perception Index. World Bank Development Indicators Transparency International. Market Development. GDP per capita. World Bank Development Indicators. Labor Cost. Monthly average wage. National Statistical Offices. Ease of Doing Business. Ease of Doing Business Index Total Tax Rate. 立. 政治大. World Bank Development Indicators. Figure 2: List of Motivations, Proxies and Sources. ‧ 國. 學. 2. 4. Research problems. ‧. There are numerous problems this study had to face. The most important one is that it. y. Nat. seems that infrastructure projects are not included in China‟s official statistical FDI. sit. data, leaving a huge lump of money out of sight. Indeed, such argument is supported. er. io. other projects tracking China‟s OFDI. China Global Investment Tracker by the. al. v i n C has U.S. Dollars (USD) invested in this country as much 4,42 billion. Furthermore, this engchi U amount of money is not spread in the whole national economy, but is amassed only in n. American Enterprise Institute finds out – to take Serbia for example, that China has. the sectors of energy and transport. 27 Drawing on this example, readers should be aware about what data they actually read. Other high-budget infrastructure projects were probably left out of this data as well.28. 26. Liu, Z., in Mráz. S. and Brocková, K. (eds), 2014, p. 28. China Global Investment Tracker, The Heritage Foundation, Washington, 2016, (accessible from: https://www.aei.org/china-global-investment-tracker/). 28 Further problem is that China often requires, mainly in the terms of infrastructure to make use of their domestic companies. This hence cannot really be understood as investment per se, as eventually Chinese firms are profiting. By the same token, ever since 2011 when China‟s COVEC did not stand to its deal with Polish government and was unable to finish motor highway from Warsaw to German borders, Chinese bids in infrastructure projects are viewed with a decent dose of misgivings. See for example: Ciensky, J., “China group sees collapse of Poland ambitions,” Financial Times, Warsaw, June 14th, 2011. 27. 14.

(27) Another issue is that the investments also come through intermediary countries.29 Hungarian national data for example claim to have obtained as much as 3 billion USD of Chinese FDI.30 The methodology and approach of statistical offices in this case plays a significant role: While Chinese chemical company Wanhua acquired as much as 96 % of Hungarian BorsodChem, it was done via Chinese subsidiary in Netherlands. As the initial amount was 1,5 billion USD and other investments followed, it is the single biggest investment project that could be traced backed to China in the region. The problem of measuring data – in this case the outward/inward FDI flows/stock plays a huge role.31 For this reason, while methodology of this paper relies only on the Chinese official sources from MOFCOM, it provides explanatory notes where deemed necessary.. 政治大 not always the only possible 立 way of measurement and what is more, they are nothing. Another limiting factor is the use of proxies for given motivation – they are. ‧ 國. 學. but indicators of such possible logic. As all of my findings cannot be considered to be more than mere suggestions.. ‧. The causality phenomenon is also a factor I did not take into account. While we do not know whether the variables served as a catalyst or as a response, it is still. y. Nat. sit. important to bear in mind that both phenomena are intertwined and do not possess too. er. io. much of a challenge to this methodology.. al. n. v i n C toh draw the full picture is still somewhat too marginal e n g c h i U of what is driving Chinese FDI.. The last problem is that the actual total amounts of Chinese FDI in this region. Since China‟s engagement is still a very recent phenomenon, this cannot be. understood as more than a preliminary study that could serve as a good guiding tool for further academic inquiry.. 29. Garcia-Herrero, A., Xia, L., and Casanova, C., “Chinese outbound foreign direct investment: How much goes where after roundtripping and offshoring?,” BBVA Research, Working Paper No. 15/17, June 2015. 30 Szunomár, Á., McCaleb, A., “Comparing Chinese, Japanese and South Korean FDI in Central and Eastern Europe: macroeconomic versus institutional factors,” (preliminary research version), 2015, (accessible from: https://editorialexpress.com/cgibin/conference/download.cgi?db_name=WCCE2015&paper_id=205). 31 Élteto, A., Szunumár, Á., “Chinese Investment and Trade – Strengthening Ties with Central and Eastern Europe,” International Journal of Business and Management, Vol. IV, No. 1, 2016, p. 13-14.. 15.

(28) 3. Theoretical Perspectives FDI as an enterprennial option arose with the very first steps of globalization. As different countries were rich in different resources those scarce and hence expensive in one place might have been cheaper elsewhere. Indeed, the very basis of investment abroad is linked to comparative advantage as suggested by David Ricardo and then developed in the terms of international trade and factor endowments by Heckscher and Olin. Later on, Kindleberge and Hymer found out that such innate differences were not the only driver of foreign investment. With the emergence of multinational corporations, these felt limited by other problems such as market imperfections, economies of scale, governmental interference, etc. and hence new incentives arose.32. 治政大 from subsidiary suppliers with primary materials, parts of the final product often came 立 growing intensity. Buckley and Casson suggested that internalization is yet another By the same token, as more developed products were growing in dependence on. ‧ 國. 學. important motivation to pump capital abroad. Their classical FDI theory suggested that ―firms internalize missing or imperfect external markets until the costs of further. ‧. internalization outweigh the benefits‖ and that ―firms choose locations for their investment activities that minimize the overall costs of their business operations.”33. y. Nat. er. io. but with no theoretically rigid and sound framework.34. sit. Following these studies, others followed suit trying to dis/prove certain motivations,. al. n. v i n C h that firms need toUhave motives to put their capital market would normally suggest engchi. Regardless of this multitude of theoretical perspectives, the dictate of the. abroad instead of in their countries of origin. Indeed, as perceived opportunities abroad objectively differ in time and space, so do the goals of potential investors. While there are naturally certain innate differences between potential recipients of inward FDI, these do not play any role until the goals, aspirations and motivations are analyzed. The Dunning‟s motivation analysis of FDI is hence a groundbreaking. 32. Nayak, D. and Choudhury R. N., “A selective review of foreign direct investment theories,” AsiaPacific Research and Training Network on Trade, Working paper No. 143, March 2014. 33 Buckley, P. J. and Casson, M., “The optimal timing of a foreign direct investment,” Economic Journal, 91(361), 1985, pp. 75–87 as in Franco, C. et al, “Why Do Firms Invest Abroad? An Analysis of the Motives Underlying Foreign Direct Investments,” The IUP Journal of International Business Law, Vol. 9, Nos. 1 & 2, pp. 42-65, January & April 2010. 34 Wadhwa, K., “Foreign Direct Investment into Developing Asian Countries: The Role of Market Seeking, Resource Seeking and Efficiency Seeking Factors,” International Journal of Business and Management, Vol. 6, No. 11; November 2011.. 16.

(29) approach applicable in case by case. While there were numerous frameworks for such academic inquiry, Dunning‟s work proved to be replicable enough to be used as a standard.35 While the theory of FDI motivations was never studied separately, its academic diversity was helpful when discovering multiple different nuances. 36 As mentioned above, the most imposing work of FDI investigation is the one by Dunning. His initial work, the OLI Model (or Eclectic Paradigm) is sourcing on the internalization theory and looks at three other different factors: Ownership advantage; Location Advantage and Internationalization advantage. 37 While these would discuss what kind of foreign market entry is the most suitable (Licensing, Export or FDI), Dunning later on further elaborated on this theory to provide four main motivations to invest abroad:38. 立. 政治大. 1) Resource seeking struggles to acquire (natural) resources that are either. ‧ 國. 學. unavailable at home or available only at higher costs. 2) Market seeking strives to reach new (and bigger) markets including suppliers. ‧. and consumers while saving on export. Nat. sit. y. 3) Efficiency seeking is defined twofold as to “take advantage of differences in. io. er. the availability and costs of traditional factor endowments in different countries” and to “take advantage of the economies of scale and scope and of. n. al. Ch. i n U. v. differences in consumer tastes and supply capabilities”39. engchi. 4) Strategic asset seeking describes investment that hopes to acquire and complement a new technological base It is important to note that this differentiation relies heavily on interpretation. For this reason it is easy to come across works that consider cheap labor as an efficiency seeking motivation, rather than a resource seeking one; at the same time, while 35. Franco, C. et al, 2010, p. 6. Check for example Chapter two from Castro, F.B., “Foreign Direct Investment in the European Periphery,” PhD. Thesis, The University of Leeds, July 2010. 37 Stoian, C. and Filippaios, F., “Dunning's eclectic paradigm: A holistic, yet context specific framework for analysing the determinants of outward FDI: Evidence from international Greek investments,” International Business Review, Vol 17, Issue 3, June 2008. 38 Dunning, J.H. 1993, Multinational enterprises and the global economy, 1993, Workingham.: AddisonWesley as in Franco, C. et al, 2010. 39 Ibid. 36. 17.

(30) exports may be often considered a market seeking motivation, in the case of CEE they are also an efficiency seeking move because of tariff jumping advantages to reach other European Union (EU) markets. Further, for example, although Whadhwa et al. think of infrastructure as resource seeking factor, this may be reasonable for their study – it is not nevertheless for this one. 40 In the view of other markets, the calculations of Chinese investors would probably ponder “if it is cheaper to export to Germany from CEE or North Africa, rather than around the lines if they can reach all the potential customers within the countries themselves”. For these reasons, we cannot delineate clearly what proxy stands for what motivation cluster as suggested by Dunning. Analytical qualitative interpretation is what helps us better unearth the meaning of the results rather than just simply putting different variables under these. 政治大 While this Dunning‟s 立 theory is the theoretical cornerstone of this work, there. four – or any other – labels.. ‧ 國. 學. is a plethora of other theories – either general or focused on the case of China – that deserve to be taken into consideration.. ‧. Ekholm, for example, came up with the idea that market seeking investment does not need to be based only on the assessment of recipient economy. This. Nat. sit. y. economy may only serve as an “export platform” and investment is hence done in the. al. er. io. view of other markets as well.41 Also institutions were rightfully acknowledged their. n. importance as these set the rules of the game. Institutions are what guards. Ch. i n U. v. uncertainties, prevents risks, but also what dictates transaction costs and thus these are. engchi. both domestically and internationally (meant in each perspective recipient state) very important.42 The abovementioned theories were initially meant to explain the natural FDI flows from developed to developing countries. Since the 1980‟s, however, developing countries – mainly on the South-South axis, started to play a more important role that dramatically graduated after the global financial crisis in 2008.43 This did not mean that the traditional viewpoints and frameworks were rendered useless, but they had to 40. Wadhwa, K., 2011. Ekholm, K. et al., “Export-platform foreign direct investment,” NBER, Working Paper 9517, 2003. 42 Bénassy-Quéré et al., “Institutional Determinants of Foreign Direct Investement,” CEPII, Working Paper No 2005-05, April 2005. 43 Aykut, D., “Outward FDI from developing countries are up, notably South-South flows,” The World Bank Blog, June 2011. 41. 18.

(31) be, at least partially, reconsidered. They firstly touched upon this new growing tendency in general and later on tackled the single most important capital exporter, China, on their own. Bano and Tabbada analyzed numerous reasons why developing countries tend to go abroad, with results suggesting that high domestic savings rate, an export oriented economy, rapidly growing GDP and substantial international reserves correlate with FDI outflow. 44 The suggested logic is very simple. Developing countries receive foreign capital, get slowly developed on certain level, accumulate savings and reserves, and then they have the option to reinvest the money either domestically or abroad. There is hence a “systematic relationship between inward and outward [FDI] flows.”45. 治政大greatly extended by J. Mathews In the region of Asia-Pacific, this has been 立 learning” framework. From his perspective, latecomers with his “linking, leverage, ‧ 國. 學. enjoy the advantage of having links to global value chains and may hence easily enter the foreign market in collaboration with native companies. The struggle to overcome. ‧. further “barriers of diffusion” by imitation or substitution of resources is, on the other hand, the leverage. Repeating this process will eventually lead to learning and. Nat. sit. y. emulation of this know-how elsewhere.46. er. io. This is indicating not only that the very basics of Heckscher-Olin‟s theory are. al. n. v i n but also that FDI theories C such and efficiency seeking is also at h eas ninternalization gchi U universally applicable (as savings rate and international reserves mean cheap capital),. place.. Rugman, on the other hand, argues that theories applied to multinational corporations (MNC) from developed countries cannot work with those enterprises from developing regions. He makes a conclusion that regional expansion of MNCs from developing countries will play a more important role than a search for cheap labor force from developed economies. Institutional setup, role of the government and 44. Bano, S. and Tabbada, J., “Foreign Direct Investment Outflows: Asian Developing Countries,” Journal of Economic Integration, Vol. 30, No. 2, June 2015. 45 Bano, S. and Tabbada, J., “Foreign Direct Investment from Developing Countries: Evidence, Trends and Determinants,” NZAE, Conference Paper, June 2012, p. 21. 46 Mathews, J.A., “Dragon multinationals: New players in 21st century globalization,” Asia Pacific Journal of Management, Vol. 23, Issue 1, March 2006 as in Thite, M. et al., “Internationalization of emerging Indian multinationals: Linkage, leverage and learning (LLL) perspective,” International Business Review, 2015.. 19.

(32) other factors need to be taken into account as well.47 Indeed, many studies suggest that a general or at least a middle-range theory applicable to OFDI from emerging markets is hard to find.48 What is, however, the position of China, and (the eternal question): “is China different”? The “Middle Kingdom” is not only different from the developmental perspective, but also from political point of view. One party system and market dominated by State-Owned-Enterprises (SOE) may naturally not respond to economic logic only and may take into account more than the enterprise survival. While this institutional specificity may be appealed to its own sort and may conduct business on its own terms, there are also other deviating factors. These include party survival and domestic (national) development,49 or promotion of foreign policy goals and policies. 政治大 understand China‟s investment 立 motivations.. abroad.50 Let‟s, however, have a more detailed look into previous studies that tried to. ‧ 國. 學. Filippov and Saebi identified three very broad motives that drive capital out of China: First, it is the macroeconomic flow of capital from places where it is cheap to. ‧. places where it is scarce. The amount of money in the “Middle Kingdom” simply begs to be invested elsewhere. The need to internationalize, gain further know-how,. y. Nat. sit. experience, survive competition etc. is a second motivation shared by Chinese. al. er. io. enterprises. Third motive is, however, according their study not economic but bows to. n. political logic as Beijing simply wants to extend influence abroad. As Chinese. Ch. i n U. v. companies are often state-owned, their ownership of firms abroad may be also linked. engchi. to Zhongnanhai‟s decision-making. 51 Such potential leverage over EU‟s decisionmaking is, however, too hard to measure at this point as its potentiality is even more elusive than a simple motivation analysis.. 47. Sauvant, K., Maschek, W., McAllister, G. (eds), Foreign Direct Investment from Emerging Markets: Challenges ahead, Palgrave Macmillan US, 2010. 48 Gill and Singh, for example, carried out a comparative study of China and India, finding that their investment target countries differ both sectorally and regionally . For more info see: Gill, A. and Singh, L., “Internationalization of Firms from Emerging Economies: Theory, Evidence and Policy,” Punjabi University, March 2012. 49 Deng, P., “Outward investment by Chinese MNCs: Motivations and implications,” Business Horizons, 47(3), 2004. 50 Yeung, H. W. C., & Liu, W. (2008). Globalizing China: the rise of mainland firms in the global economy. Eurasian Geography and Economics, 49(1), 57-86. 51 Filippov, S. and Saebi, T., 2008.. 20.

(33) Berning and Holtbrugge in their quantitative research found out that the majority of studies on China‟s OFDI do not conform to traditional internationalization theories of FDI. In conclusion, they suggest that these theories – in order to let us better understand the nature of Chinese OFDI – need to undergo at least a certain degree of extensions and modifications.52 Other researchers agree. Morck et al. suggest that, although economic-wide logic plays an important role, a number of distortions occur mainly because majority of Chinese investors abroad are SOEs. For various reasons, their rationale to invest in certain countries and/or sectors may differ from general theories driven by liberal and capitalist worldviews. Three key findings may help us understand Chinese behavior better – since these SOEs have deep knowledge of elaborate bureaucratic systems,. 政治大 maturing industries in立 China have been due to their growing capabilities able to. institutional closeness of recipient state may play an important role. Second, certain. ‧ 國. 學. reverse the traditional developmental roles as they may know their needs better than other investors, hence they take initiative. And third, “China’s outward FDI may be justified economically to SOE insiders who overvalue control due to their distrust of. ‧. markets and sense of national pride”.53. y. Nat. sit. Interestingly enough, Child and Rodrigues do support this thesis in similar. al. er. io. terms. They present the idea that China‟s OFDI is not driven by hopes to gain better. n. competitive advantage but to address their competitive disadvantages. They suggest. Ch. i n U. v. that catch-up strategies, role of the government, institutional background and liability. engchi. of the foreigners should be taken into account as well.54. Further, Buckley et al. found that special explanation of Chinese OFDI did bring fruitful outcomes. Their study incorporated such non-traditional variables as capital market imperfections, special ownership advantages and institutional factors into the general theory of MNCs investment incentives. With this study, they. 52. Berning, S.C. and Holtbrugge, D., “Chinese Outward Foreign Direct Investment – a Challenge for Traditional Internationalization Theories?,” Journal für Betriebswirtschaft, Vol. 62, Issue 3, pp 169224, December 2012. 53 Morck, R. et al, “Perspectives on China‟s Outward Foreign Direct Investment,” Journal of International Business Studies, 2008. 54 Child, J. and Rodrigues, S., “The Internationalization of Chinese Firms: A Case for Theoretical Extension?,” Management and Organization Review, Vol. 1, Issue 3, pp 381-410, November 2005.. 21.

(34) successfully identified positive correlations with host country political risk, cultural proximity, market size and natural resources endowments.55 While some studies argue whether well- or badly-governed countries attract more investment, Li and Liang, regardless of these measures, had a look at bilateral relations of respective countries with China. They did find out that the better political relations, the higher flows of China‟s FDI. Their logic suggests that better political ties would serve as protective measures for China‟s money.56 While these theoretical works served as the background understanding of FDI motivations, the selection of respective FDI has been made not only in the view of these, but other peer studies were taken into account as well. This was done in order. 政治大. to make mutual comparison possible.. 立. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 55. i n U. v. Buckley, P. et al, 2007. Li, Q. and Liang, Q., “Political Relations and Chinese Outbound Direct Investment: Evidence from Firm- and Dyadic-Level Tests,” Research Center for Chinese Politics and Business, Working Paper #19, Indiana University, 2012 as in Matura, T., 2015. 56. 22.

(35) 4. Chinese Investment in Central and Eastern Europe This chapter will briefly introduce the recent history of China‟s investment engagement in the region of CEE. It will first touch upon the general development, then it will discuss the new China-CEE 16+1 cooperation platform and in the end it will tackle the position of the European Union. This basic understanding will allow readers to proceed to the core section of Chinese motivations to invest in this region which follows this chapter. The way China has perceived the region of CEE was in the terms of great potential gains. It is has become a new market with great economic perspectives on its own but it could, more importantly, assume the strategically important role of a gate. 政治大. to the rest of EU. Indeed, its special position stems from its nature of politically stable. 立. environment, where economic development has not reached its Western neighbors. In. ‧ 國. 學. the view of a number of comparative advantages (such as cheaper labor costs, tradition of manufacturing, good access to the rest of EU,... ) it is seen as a great export platform to reach and tap other potential markets. The special nature of CEE. ‧. with all its benefits hence dwells both in its economic and political development. sit. y. Nat. levels. Although in both it is considered developed, in the terms of economic. io. production base.. n. al. er. comparative advantages, it assumes the position of less developed and thus cheaper. Ch. engchi. i n U. v. 4. 1. The investment development. Economic development of CEE is closely linked to the political development of Europe. After the end of the Cold War and subsequent dissolution of Soviet Union, privatization reforms, transformation of the markets and opening up of the economies provided great potential for successful investment projects. Opportunities of 90‟s, however, with the development of given economies and accession to the EU faded away without China‟s notice. Since the PRC was keeping a low profile in this decade, the region as far as CEE was completely out of China‟s sight and interest.57. 57. Liu, Z., in Mráz. S. and Brocková, K. (eds), 2014, p. 24.. 23.

(36) Although Beijing‟s strategy changed with the turn of the millennium to more pro-active “go abroad strategy,” the region of Central and Eastern Europe remained considerably neglected. It was as late as 2005 with the 11th Five-Year Plan released for the period between 2006-2010, that Chinese documents specifically mentioned diversification of investment targets – and one of the regions suggested truly was CEE. However, elaborate legal provisions of the EU slowed down China‟s engagement in this area. Although some claim that the most important trigger was the accession of some of the countries into the EU in 2004,58 mutual benefits started to be seen mainly in the aftermath of the Greek sovereign debt crisis, putting the whole of EU into dire economic perspectives. After 2008, countries of CEE felt financially neglected by Brussels and hence. 政治大 in this region took off. 立 Indeed, while China was looking for profitable markets to pour started to fish for money elsewhere. It was at this moment, when China‟s engagement. ‧ 國. 學. its investments in, the region of CEE, aware of this opportunity, made steps to become more conducive for Chinese projects (see later in the political proximity section). Indeed, such cooperation was seen as mutually beneficial. Even so, from. ‧. China‟s point of view, CEE‟s importance still cannot match other regions.. Nat. sit. y. Nevertheless, in order to create institutional platform for China‟s cooperation. al. er. io. with this region, Beijing came up with the so called 16+1 initiative. It has been. n. introduced in 2012 as a push in all fields of mutual cooperation. Ever since, top-. Ch. i n U. v. leaders summits take place every year, discussing ways and fields of enhancing such cooperation further.. engchi. While it was China who came up with the sixteen countries that define the scope of this study, it seems to have done so on purpose. CEE countries are the ultimate hub of China‟s “One Road One Belt” strategy aiming to reach developed western European markets. With the lack of homogeneity and inability to create coherent foreign policy towards China, Beijing was able to lump these sixteen countries into one herd, while at the same time preferring bilateral cooperation over the multilateral one.59. 58. Szunomár, Á., McCaleb, A., 2015. Jaroch, E., “China‟s Foreign Policy Towards CEE Countries: Determinants, Development And Problems,” People’s Square, March 2016. 59. 24.

(37) Country. 2006. 2007. 2008. 2009. 2010. 2011. 2012. 2013. 2014. 0,51. 0,51. 0,51. 4,35. 4,43. 4,43. 4,43. 7,03. 7,03. Bosnia and Hercegovina. 3,51. 3,51. 3,51. 5,92. 5,98. 6,01. 6,07. 6,13. 6,13. Bulgaria. 4,74. 4,74. 4,74. 2,31. 18,6. 72,56. 126,74. 149,85. 170,27. Croatia. 0,75. 7,84. 7,84. 8,1. 8,13. 8,18. 8,63. 8,31. 11,87. Czech Republic 14,67. 19,64. 32,43. 49,34. 52,33. 66,83. 202,45. 204,68. 242,69. Estonia. 1,26. 1,26. 1,26. 7,5. 7,5. 7,5. 3,5. 3,5. 3,5. Hungary. 53,65. 78,17. 88,75. 97,41. 465,7. 475,35. 507,41. 532,35. 556,35. Latvia. 2,31. 0,57. 0,57. 0,54. 0,54. 0,54. 0,54. 0,54. 0,54. Lithuania. 3,93. 3,93. 3,93. 3,93. 3,93. 3,93. 6,97. 12,48. 12,48. Macedonia. 0,2. 0,2. 0,2. 0,2. 0,2. 0,2. 0,26. 2,09. 2,11. Montenegro. 0. 0,32. 立. 0,32. 0,32. 0,32. 0,32. 0,32. 0,32. 0,32. Poland. 87,18. 98,93. 109,93 120,3. 140,31 201,26. 208,11. 257,04. 329,35. 65,63. 72,88. 85,66. 93,34. 124,95 125,83. 161,09. 145,13. 191,37. 0. 2. 2. 2,68. 4,84. 5,05. 6,47. 18,54. 29,71. 0,1. 5,1. 5,1. 9,36. 9,82. 25,87. 86,01. ‧. 82,77. 127,79. 1,4. 1,4. 1,4. 5. 5. 5. 5. 5. 5. 348,15. 410,6. 852,58 1008,86. TOTAL. Nat. Slovenia. 239,84. 301. io. n. al. y. Slovakia. sit. Serbia. 1334. 1435,76. 1696,51. er. Romania. 政治大. 學. ‧ 國. Albania. i n U. v. Figure 3: The Stock of China's investment in CEE 2006-2014 in millions of USD60. Ch. engchi. China‟s cooperation with the CEE countries is in the way of capital engagement undoubtedly going to continue. The new plan for the period 2015-2020 has agreed to provide almost USD 3 billion as a part of investment fund (and currency swaps).61. 60. 2014 Statistical Bulletin of China’s Outward Foreign Direct Investment, Ministry of Commerce of the People‟s Republic of China, 2015. 61 Europost, “China woos Eastern Europe,” November 2015.. 25.

(38) TOTAL. 1800. Hungary. 1600. Poland 1400 1200. Czech Republic Romania. 1000. Bulgaria Slovakia. 800. Serbia 600. Lithuania. 400. Croatia. 200. Albania. 0 2006. 立. 2007. 2008. 政治大. 2009. 2010. 2011. 2012. 2013. 2014. Bosnia and Hercegovina. ‧ 國. 學. Chart: Linear graph of China's investment stock in CEE 2006-2014 in millions of USD62. ‧. Although Chinese OFDI grew globally sevenfold in the period 2004-2010 on average, it grew more than seventeen times in CEE, marking an unprecedented boom.63 This. y. Nat. sit. rapid development continued. The total amount of investment between 2006 – 2014. al. er. io. has grown more than sevenfold as well. 64 The rapid boom in importance is clearly. n. perceivable. Regardless of these numbers, however, this region still plays only a. Ch. marginal role in China‟s OFDI.. engchi. i n U. v. Asia 69% Europe 8,8% Latin America 8,6% North America 7,5% Oceania 3,5% Africa 2,6% Chart 1: Geographical Distribution of China Investment Stock, total amount 123, 1 Billions of USD. 62. 2014 Statistical Bulletin of China’s Outward Foreign Direct Investment, 2015. Golonka, M., “Partners or Rivals? Chinese Investments in Central and Eastern Europe,” Central and Eastern Development Institute, Warsaw, Poland, 2012. 64 Ibid. and Liu, Z., in Mráz. S. and Brocková, K. (eds), 2014, p. 25. 63. 26.

(39) While China‟s OFDI has grown even faster ever since the global financial crisis and China became a net capital exporter in 2014, other regions attracted Chinese money comparably more than CEE.65 When comparing Chinese investment in the region of CEE with total amount of China‟s FDI into EU (which amounts to 54, 210 Billions of USD), the official Chinese data would suggest that CEE accounted for only about 3% of the total amount. Also, despite critical voices about the speed of Beijing‟s investment in this region, the growth still lacks behind the amounts received by the whole of EU.66 Although Europe as a whole received, according to World Resources Institute (and according to China‟s official sources also) only about 8% of China‟s total FDI in 2013, the region of CEE obtained only a small fraction of that.67 The comparative under-development of relations with Eastern part of Europe thus still. 治政 of Chinese capital, CEE plays the same role within 大 Europe. 立. remains visible.68 So while Europe plays only a marginal role among other recipients. ‧. ‧ 國. 學. n. al. er. io. sit. y. Nat. CEE 1, 7 EU 54, 21. Ch. engchi. i n U. v. Chart 2: Chinese Investment in Europe (Billions of USD) 69. From the total amount of China‟s FDI in the region, it is clearly perceivable that Hungary, Poland, Czech Republic, Romania, Bulgaria and Slovakia are the most important players. These are at the same time the strongest in the terms of total economic output and population. McCaleb and Szunomar point out that these countries, although nowadays quite different in many aspects of their respective. 65. Asia Times, “China becomes world‟s top net capital exporter,” February 2016. 2014 Statistical Bulletin of China’s Outward Foreign Direct Investment, 2015. 67 Zhou, L. and Leung, D., “China‟s Overseas Investments, Explained in 10 Graphics,” World Resources Institute, January 2015. 68 Simurina, J., “China‟s Approach to the CEE-16,” Europe China Research and Advice Network, Short Term Policy Brief, No. 85, January 2014. 69 2014 Statistical Bulletin of China’s Outward Foreign Direct Investment, 2015. 66. 27.

(40) economies, have enjoyed very similar development in the last decades, including transformation, catching up with wealthier Western Europe (while at the same time being more and more dependent on this region) while relying on FDI when restructuring domestic economies. Although China‟s growth and related possibilities could not have undergone unnoticed even in this region, CEE countries‟ interests grew rapidly especially after the Euro financial crisis in 2008, when traditional vectors of their economies stopped working as needed.70. 立. 政治大. ‧. ‧ 國. 學 y. Nat. er. io. sit. Chart 3: Geographical distribution of China's investment in CEE - colored map of CEE. It has been suggested that CEE, especially its core part of Visegrad Four (V4,. n. al. Ch. i n U. v. countries of Poland, Czech Republic, Slovakia and Hungary) will serve as the factory. engchi. of Europe and hence the very same role as China for the world. V4 may eventually also be the growth engine of Europe as the catch-up process and comparative advantages for FDI projects may help these countries grow faster than Western Europe. Indeed the growth dynamic, lower wages, skillful labor force, healthy. 70. Élteto, A., Szunumár, Á., 2016, p. 11. The situation with Slovakia was somewhat different as first significant increases occurred already prior the Euro crisis. First significant increases took place already in 2007, however ever since this stock fluctuated and it is difficult to establish well-reasoned explanation as reasons for this development may vary and may be dependent not only on European and global economic development but also on the domestic circumstances in both countries. Although Slovakia remains among one of the main beneficiaries in this regions, the amount of FDI obtained is still relatively modest. Turcsányi further suggest that even if we take into account investment of Chinese origin but carried out by subsidiaries from third countries, the total would add up to only to 100 – 200 million Euros (EUR). Turcsányi R. Q., "Chinese financial presence in Slovakia and Slovak „China policy‟," in: Szunomár Á. (eds), Chinese investments and financial engagement in Visegrad countries: myth or reality?, Budapest: Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences, 2014, pp 89-107.. 28.