Working Paper Series China’s Outward FDI: Past and Future+

Abstract: In this paper we provide a systematic analysis of the size and composition of China’s outward FDI in 2003-2005. Despite the attention given to China’s recent outward FDI and the prospect that it will continue to surge upward, its investment flows and stocks were smaller than those of some small industrial economies and some emerging developing economies as of 2005. The bulk of China’s FDI was made by firms owned by or associated with different levels of governments, including its largest multinational companies. By the end of 2005, business services accounted for the largest share of China’s outward FDI stock (28.9%), to be followed by wholesale and retail, mining and petroleum, transportation and storage, and manufacturing. The true breakdown of the destination of China’s FDI was basically unknown because a predominant share of its FDI in recently years was made in the world’s tax havens, An empirical analysis reveals that the host economies ’ GDP had a positive impact whereas their respective distances from China had a negative impact on attracting FDI from China. Their per capita GDP had no impact on FDI flows but a negative impact on FDI stocks. Cultural proximity was a positive factor in attracting China’s FDI t