Since 2000 Chinese Outward Foreign Direct Investment(OFDI) has experienced a rapid growth. It has already become an important part of the world OFDI. In the wake of the global financial crisis of 2008, the OFDI of the other economies showed a remarkable decrease, but Chinese OFDI has increased.
The research motivation of this study is to investigate: How changed International economic environments take effect on Chinese OFDI. Two factors are here to be considered as changed economic environments. We would give attention to the global financial crisis as well as Free Trade Agreement(FTA).
Firstly we focused on the relationship between the global financial crisis and Chinese OFDI and examined OFDI based on natural resource-oriented investment and knowledge-oriented investment. For econometrics analysis, the FGLS(Feasible Generalized Least Squares) regression model was applied: the official data covering Chinese OFDI into top 100 countries and 20 countries in the resource production and the patent grants from 2003-2012 were used to test this study.
One major finding is that China demonstrated strong motives for natural resource-oriented investment and knowledge-oriented investment after the global financial crisis. Traditional FDI theory(relevant to developed and developing countries) could not coincide with the results of our findings: Conventional patterns of FDI could not sufficiently explain the recent Chinese OFDI. China seems to have some distinguished features in her OFDI.
Secondly we researched the effects of China's Free Trade Agreement on OFDI. To do so we reviewed the previous studies about the relationship between FTA and FDI flow. Using econometrics models, we tested the effects of China's FTA on OFDI. Here was applied the Knowledge-Capital model, addressing positive or negative relationship between trade costs and foreign direct investment (horizontal or vertical). We tested the hypothesis using data on China's FTA and OFDI during 2003-2012.
We come to the results that China's FTA have a positive effect on OFDI. This means that the empirical results support the hypothesis partly. In general, FTA encourages OFDI by creating a friendly environment. Meanwhile the effect of the method of China's FTA on OFDI is somewhat unclear: Gradually agreed FTA(step by step FTA) showed stronger effects on OFDI than comprehensive FTA.