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The Impact of Foreign Bank Presence on Foreign Direct Investment in China

Author

Listed:
  • Steven ONGENA

    (University of Zurich, Swiss Finance Institute, and CEPR)

  • Shusen QI

    (Tilburg University)

  • Fengming QIN

    (Shandong University)

Abstract

We analyze the impact of foreign bank presence on foreign direct investment (FDI) in China. The connection between the two could be particularly relevant for an emerging economy like China because the supply of financial services provided by banks may act as a constraining factor. Foreign bank presence may then enable and foster FDI and not simply result from it. Our estimates demonstrate that FDI across regions in China is increasing in the existing network of regional branches of foreign banks, which itself is driven (and, therefore, instrumented) by the timing of the regional phasing out of the local limits for foreign banks on local currency business. The effect of foreign bank presence on FDI is particularly strong for some specific sectors (farming, manufacturing, construction, transportation, wholesale/retail trade and real estate) if those sectors are importantly represented in the source economies.

Suggested Citation

  • Steven ONGENA & Shusen QI & Fengming QIN, 2014. "The Impact of Foreign Bank Presence on Foreign Direct Investment in China," Swiss Finance Institute Research Paper Series 14-13, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1413
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    Cited by:

    1. Shujie Yao & Fan Zhang & Pan Wang & Dan Luo, 2017. "Location Determinants of China's Outward Foreign Direct Investment," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 25(6), pages 1-27, November.
    2. Bellak, Christian & Leibrecht, Markus & Chaisse, Julien, 2022. "Reforming International Investment Agreements," Department of Economics Working Paper Series 328, WU Vienna University of Economics and Business.
    3. Christian Bellak & Markus Leibrecht & Julien Chaisse, 2022. "Reforming International Investment Agreements: The Case of China and Foreign Direct Investment," Department of Economics Working Papers wuwp328, Vienna University of Economics and Business, Department of Economics.
    4. Yao, Yao & Chen, George S. & Zhang, Lin, 2021. "Local financial intermediation and foreign direct investment: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 198-216.
    5. Lu, Liping & Tumer-Alkan, Gunseli & Zhang, Haiyang & Xu, Binbin & Wu, Weixing, 2021. "Do bank loans still convey information to investors? Evidence from the split share structure reform in China," Emerging Markets Review, Elsevier, vol. 48(C).
    6. Steven Poelhekke, 2016. "Financial Globalization and Foreign Direct Investment," Tinbergen Institute Discussion Papers 16-098/VIII, Tinbergen Institute.

    More about this item

    Keywords

    Foreign direct investment; foreign bank presence; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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