Chinese Outward Foreign Direct Investment: In Search of a New Theory

In past years, China recorded a fast sustainable economic growth with an estimated average GDP growth rate of 9.7% in the period of 1980-2008, turning China into the world’s second largest economy. With an export oriented economic model, China is the most attractive developing country for FDI flows, both short and long term. In this regard, China has been able to achieve a foreign exchange reserve of US$ 2.2 trillion, the world´s largest reserve currency. Around 50% of this huge reserve is being applied in American bonds, while the remaining supports Chinese health and social security systems, bank solvability, internationalization of their economy, investment in geostrategic positioning, and making foreign aid available to other developing countries. During the 2008 global crisis, China was able to resist better than other major world economies, benefitting from this downturn to implement policies to reduce its economic imbalances. One of these imbalances is the gap between Chinese FDI and OFDI, which is now progressively narrowing. In the near future, OFDI is expected to be larger than FDI, and in this paper, the authors research whether Chinese OFDI can be explained by existing theories or if a new theory is required.