International Mangement for China Dissertation

7/24/2019 International Mangement for China Dissertation

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Raul HaynesSOAS University of LondonInternational Management for ChinaDissertation Topi!

Determinants of Chinese "DI to Afria! An Assessment of the relationship#et$een %olitial &aria#les and Chinese investment strategy'

Abstract


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China has rapidly emerged as on the worlds largest investors abroad. There is vibrantdebate as to the waning importance of the west as a result of Chinas aggressive globaloutward foreign investment (OFDI strategy. !frica has been an important focus ofChinas OFDIprimarily for natural resources to fuel and sustain its minimum re"uiredgrowth rate of #$. In addition% !frica has seen rapid economic growth over the past &years and in the case of 'thiopia% sustained double digit growth. This paper aims at

determining the motives behind Chinas increasingly active presence on the continentand the relationship between natural resourcesand the weak institutionsin !fricafrom the strategic seeing perspective of Chinese state owned companiesinternationali)ation. It has been identi*ed that the ma+ority of FDI stoc to !frica ischannelled through ,tate owned companies (SOEs) which is why they are the emphasisof this research. Concomitantly% it must be highlighted that the Chinese -olitical economyis ma+or determinant of Chinese OFDI to !frica and therefore must be analysed in furtherdetail. The eisting literature focuses on standard ODFI behaviour that was uncoveredprimarily from the study of advanced industrialised multinationals. This paper taes intoaccount and highlights the di/erences in Chinese ODFI behaviour from eisting studiesand discusses the ability of the ownership structurein China to transform competitivedisadvantages into advantages by entering !frican countries with wea institutions andin many instances political instability. 0owever% the ris associated with Chinese

investment in countries with wea institutions and political instability may have negativeimpact on Chinese economic growth and development of !frica. This wor attempts toassess the motivations% costs and bene*ts of the ,ino1!frican strategy.

(ey$ords! China OFDI

Natural ResourcesWeak InstitutionsSOEsOwnership Structure

Strategy


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Introduction

Researh Aim and O#)etives

This paper attempts to identify the main determinants of Chinese Out$ard"oreign Diret *O"DI+ investment to Su#,Saharan Afria *SSA+' These

determinants should #etter guide the analysis of Chinese O"DI strategy to theregion *SSA+ and the relationship #et$een ountries $ith $ea-institutions.politial insta#ility and large natural resoure endo$ments' Thisstudy is done to advise #oth #usiness and poliy ma-ers relevant to Chinese andAfrian industry a#out the pros and ons of China spei/ internationali0ation tothe ontinent'

1a-ground and Researh 2uestions

Over the past ten years China has sustained high eonomi gro$th and as of"e#ruary 3456 registered a reord sales surplus of USD 74 #illion' 89ports

inreased :;< to USD 57= #illion and imports fell 34< to USD 54; #illion*U>CTAD 345:+' The drop in imports $as attri#uted to a redution in the pries ofommodities suh as oil? gas and minerals *natural resoures+' This redution invalue sa$ a signi/ant derease in the value of imports from Afria of $hih :4igeria and JT8and Hua$ei are #uilding /9ed and $ireless ommuniation net$or-sthroughout the ontinent *"DI mar-ets 3456+' Infrastruture development inAfria reates a #etter environment for the Chinese to do long term #usinessand also raises the standard of living of Afrians' 89aminations of the trendsof Chinese O"DI into Afria has #rought a#out alternate vie$s on thehanging fous of natural resoures e9tration.e9ploitation to a more nuanedargument surrounding see-ing of Gsoft po$er@ motivated #y the Chinesepolitial eonomy and its institutional frame$or-' Many studies have revealedthe Chinese government@s role in e9pediting the internationali0ation of SO8sthrough various poliies and eonomi reform mehanisms' It has also #eensaid #y *99999+ that the Chinese SO8s are an instrument of aomplishingChinese foreign poliy o#)etives that are very losely related to overalleonomi goals' An e9ample of the future importane Afria $ill play in glo#al

eonomis $as illustrated this summer $hen %resident O#ama travelledthroughout the ontinent spending most time in (enya and 8thiopia toreinfore US diplomati ties' Ironially? ho$ever? $hilst in (enya the very#uilding he spo-e in $as a gift from the Chinese government to (enya of USD34 million' This Gstadium diplomay@ as many eonomist all it is prevalentthroughout Afria' %oint of referene is the ne$ USD 344 million Afrian Union#uilding onstruted #y the Chinese government as a Ggift@ and sym#ol of longterm partnership and good$ill' Today? China is the main investor in SouthAfria *8venett? 344=! Sissors 3454+' In 345: trade Ko$s #et$een China andAfria totalled USD 534 #illion and as a result diplomati lin-s havestrengthened and the Chinese seem to have a #etter rapport $ith Afrianinstitutions and governments than their $estern ounterparts' "urthermore?

apan? South (orea and Tai$an are foring China to Gstep up@ their game in theregion #ased on their inreasing ompetitive presene' Mihael %orter


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outlines the importane of positional play as an integral part of #usinessstrategy? espeially in an inreasingly ompetitive Afrian #usinessenvironment' As a result? China@s politial eonomi landsape and tradehistory $ith Afria may #e leveraged to displae the popular O8CD ountries'

This paper attempts to illustrate ho$ China the lateomer is a#le totransform ompetitive disadvantages into advantages $hen it relates toAfrian investment and #usiness development' "or e9ample? the la- of therule of La$ and regulatory #arriers may in some instanes reate faster andeasier means of doing transation in a south to south investment senario as$ith the China . Afria senario that is #eing assessed' Although orporategovernane remains a sore point for many Chinese /rms suNient SO8reforms proesses e9euted sine the mid,nineties to date? has realisedsigni/ant gro$th and pro/ta#ility for Chinese /rms entering Afria' Itremains argua#le that additional reforms are neessary to ahieve sustainedgro$th? #ut nonetheless the urrent approah is seemingly $or-ing for theChinese' This paper goes a#out on/rming the diFerenes #et$een traditionalO"DI strategy and the Chinese strategy #y testing the relationship #et$een

natural resoures and the institutional $ea-nesses of a sample of SSAountries $ith intentions of identifying a positive relationship #et$een O"DIand institutionally $ea- and politially unsta#le ountries' This $ill allo$ theveri/ation of strategi diFerenes #et$een Gsouth to south@ investmentrelationships and ho$ these diFerenes have potential to harter a ne$ $ayof transating international #usiness in the Developing $orld'

Chinese State o$ned ompanies #ased on their state #an- funding ando$nership strutures have the a#ility to stomah larger ris-s and e9tendperiods of e9peted /nanial returns' This alters the $ay they assess ris- andthere#y enter mar-ets that are typially deemed non,via#le #y privateompanies' Moreover? China@s history of eonomi relations $ith many Afrian

ountries from a non,oloni0ing and mutually respetful standpoint providesthem an advantage $ith regards to trust and relationship #uilding that@samiss $ith many 8uropean /rms' The olletivist nature and politiallandsape is also a ommon ground for many Afrian ountries $ith priorautorati regimes' "urthermore? the rapid development of China enouragesAfrians and inspires them to #elieve that China has the formula for thesuess of developing ountries' In total? the researh done in this papersuggests that institutional ators have the most #earing on the level of O"DIin a loation from a Chinese perspetive' Also? its ontri#ution to the e9istingliterature on Chinese O"DI should #etter advise Chinese.Afrian ommerialrelationships going for$ard'


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Literature Review

8onomi data sho$s that China@s out$ard foreign diret investment isheavily #iased to$ards ta9 havens in the treasure islands suh as Caymanand mostly distri#uted throughout Southeast Asian ountries' In addition?most "DI Ko$ is transated #y state o$ned enterprises $ith governmentsantioned monopoly status' The impliations of state o$nership and #an-dominated apital alloations are that although China@s post,reession "DIontinues to surge? the method and determinants of Chinese O"DI may not #eas eonomially sensi#le' Ho$ever? politial motivations and the pereptionof grandeur may replae pro/t ma9imi0ation and lead to long term /nanialfailures'

Determinants of "DI

The literature on the Determinants of Chinese "DI is grounded in theDunning@s OLI theory that spea-s to /rm spei/ advantages that an #etransferred to overseas mar-ets to enhane pro/ta#ility of /rms *Dunning5=B7+' Dunning@s eleti paradigm refers to the /rm@s resoure see-ing?mar-et see-ing and eNieny see-ing #ehaviour as a ma)or motivation forinternationali0ation' The lateomer perspetive *Rodrigue0 344B+ is ane9tension of the OLI theory and refers to the need for developing ountries to

intensify international trade and ommere as a means to Gath up@ $ith thealready developed $est that has esta#lished multinationals and $ide geopolitial presene' The /ght to #e the $orld hegemony is deeply rooted inChina@s history and implemented as $ell in its onseutive /ve year plans asan underlying fore #ehind out$ard foreign diret investment *Cui and ang3453+' This perspetive supports the institutional theory position that e9plainsthe relationship #et$een the state and its agents as determinants ofinternationali0ation' This perspetive is relevant to the researh in this paperthat aims to assess the strategi approah of Chinese SO8 internationali0ationto Afria and #eause of the dynamis related to state o$nership must #evie$ed from an institutional perspetive'

The internationali0ation strategy of private ompanies from the $est? sharesome similarities to the Chinese $ith regards to motivating fators' Ho$ever?


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the o$nership and orporate governane diFerenes distinguish ChineseSO8s and the assessment there#y reEuires a diFerent means of measure'

Therefore it is important to assess the Chinese strategy and its level ofeNieny and sustaina#ility in Afria also from the Ageny Theoryperspetive' Ageny Theory depits the orporation as a legal /tionPfuntioning as a net$or- of ontratsP #et$een diFerent fators ofprodution? namely the ompany@s onstituenies *ensen et al'? 5=B7+' Morespei/ally? as shareholders@ $illingness to invest in the #usiness does notautomatially imply their possession of interest? a#ility and time inmanaging.ontrolling it? a prinipal,agent relationship is reated? $here thema9imi0ation of the former@s $elfare and value is seen as the main o#)etiveof the #usiness? and it diretly depends on the deisions ta-en #y the latter*ensen et al'? 5=B7Q Hansmann et al'? 3444Q Armour et al'? 344=+' ChineseSO8s have a history of sandals surrounding graft and overall shareholdermistreatment' The urrent premier i %ing has made several #old steps toonfront these issues #y harging and #ringing #efore the ourt many highran-ing ivil servant and military oNials' These Gorporate measures@ are

synonymous $ith the orporati0ation reform that ontinues to shape theorporate governane of many SO8s' It is important to assess the o$nershipstrutures of the SO8s that are most ative in the internationali0ation proessand spei/ally those that enter Afrian states' Chinese SO8s are oftenritii0ed for non,transpareny and non,ommitment nor respet for rule ofla$' Ho$ever? #ased on the Lateomer@s perspetive it may #e argued thatthese are means of irumventing ompetitive disadvantages in an attemptto outpae rivals and sei0e positions of strategi po$er #efore $estern rivals'"or e9ample? in Angola? a- Ma an agent of the state often referred to as theGmiddle man@ during oil negotiations does not provide dislosure on dealsdone in the Su# Saharan Afrian region to the pu#li' This seretive #ehaviouroften evo-es negative feelings from minority shareholders that are una#le topartiipate in the deision ma-ing proess partiularly for high ris-investments suh as the nature of many Afrian investments underta-en #yChinese SO8s' Aording to the 8Nieny Mar-et Hypothesis information isthe #enhmar- needed to determine the prie of a good aurately *1rian345:+' ithout information the sto- mar-et is una#le to orretly representthe mar-et and asymmetry of information ours' As a result? $e see theChinese sto- e9hanges having serious issues and ausations of #eingunreasona#ly distorted #y the government there#y reating ineNientalloation of resoures' Although the government interferene ahievespolitial o#)etives this type of anti,free mar-et #ehaviour may lead to loss ofonsumer on/dene and further ontrations for the Chinese eonomy as a

$hole' On the ontrary? this la- of orporate dislosure stane is oftendefended #y the Chinese government mainly #eause China has #uilt up a-no$ledge eonomy $ith regards to dealing $ith partiularly politiallyunsta#le $ar torn Su# Saharan Afrian ountries that thus far has provensuessful in the realm of #usiness negotiation and politial engagement $iththese territories' Moreover? these loations represent a possi#le G#lue oean@of long,term gains and hyper gro$th rates one given the reEuisiteinvestments' Therefore? the ris-y #ehaviour may pay oF one the /rms haveesta#lished a seure /rst mover advantage and suNient /naning isavaila#le'

In the ase of China the state is of paramount importane' China is an

autorati merantile eonomy $ill several state agenies atively involved inthe diretion and management of its ommerial arms or SO8s' Although


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ma)or eonomi reforms *orporati0ation+ have transpired over the past 54years? many #elieve that SO8s are also a form of e9euting Chinese foreignpoliy initiatives and unli-e private enterprises pro/t ma9imi0ation is not thesole o#)etive' As a result? dislosing SO8 strategies that may possi#ly #elosely assoiated $ith foreign poliy strategies is against #oth nationalseurity and strategi interest'

%ay %a- %eriod

"urthermore? the SO8s are a#le to stomah a muh larger degree of apparentris- and don@t neessarily follo$ the typial ,6 years pay#a- period that isstandard for $estern /rms' Instead? #ased on the Ming dynasty approah to$orld dominane that is inherent in Chinese ulture many state pro)etsapproah south to south investments $ell a$are of the infrastrutural andinstitutional de/ienies and are more patient $ith regards to e9petedpay#a- periods' 89tended pay#a- periods is an important aspet of Chineseinvestment strategy to$ards Afria and provides a ompetitive advantage#eause longer periods? result in more $eloming host ountry governments

throughout Afria that desperately need the investments partiularly ininfrastruture' The ne$ly formed Asian Infrastruture Development 1an- of$hih China is the ma)or ontri#utor is very diFerent from traditional $esterndevelopment agenies suh as the IM"' "or instane? the AIIC $hih is used tofund various infrastruture development pro)ets unli-e the IM" is not a votingsystem #ased on apital strength #ut rather an eEuita#le one vote systemthat is spread eEually amongst partiipating mem#ers' This approah reKetsa very diFerent approah to development that $elomes China to variousemerging mar-et ountries and #olsters trust and redi#ility' Although? manyritis deem the state led approah to #usiness unsustaina#le it may #eargued that the alternative approah is in its earliest stages and a ne$ model

for third $orld #usiness development may stem from the Chinese led model'89tended pay#a- periods for #oth #usiness investments and loans maymotivate greater sale of investment to Afria and #etter #usiness on/denein Chinese ompanies entering the mar-et'

Chinese "DI Strategy

The Angola model refers to an e9hange of heap /naning for ommoditiessuh as oil and minerals' China 89im 1an- ompleted its /rst oil #a-ed loan$ith Angola in 344: and this type of arrangement failitated Sinope? to $ine9ploration ontrats #y issuing loans $orth USD : 1illion' This Angola modelis important #eause it has #een repliated throughout Su# Saharan Afria*SSA+ and provides Afrian nations $ith an alternative to the $esterninstitutions suh as the IM" and orld 1an- that ditate more stritly theterms of spending and have higher /naning rates' In addition? the Angolamodel inreases China@s geo politial inKuene glo#ally and paints China as amore soially responsi#le nation $ith a -ind heart' Often times the Chinesegift Afrian ountries $ith infrastrutural development funding free of harge'

The diFerene to $estern foreign aid is that the #uildings are onstrutedfaster and #y Chinese $or-ers $ho e9hange #uilding and engineeringe9pertise $ith the loals' In 344; the China Rail$ay roup used the GAngola

model@ to $in the mining rights to opper and o#alt mines in the DemoratiRepu#li of Congo' *1roo-ings Institution 344:+' The main reason China uses


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reen/eld investments as a ma)or mode of entry is #eause theinfrastrutural loans agreed upon are also to #e #uilt #y Chinese /rms thatare -no$n for their eNieny in /nishing pro)ets in a timely manner' This isan important attri#ute to the Chinese investments #eause the loan pa-agesthat are used as Gdeal s$eeteners?@ must #e #uilt #y Chinese in order toensure that the pro)et remain via#le to #oth parties' A popular omplaint ofChinese "DI to Afria and other developing regions is that the Chinese oftenemploy minimal amount of loal talent' This is often fro$ned upon #y poliyma-ers' Ho$ever? the Chinese talent is often more produtive than theine9periened loal talent' "urthermore? the /naning osts are alreadysigni/antly #elo$ mar-et and as a result it may #e onsidered too great aris- to employ loal talent that may not #e a#le to meet pro)et deadlines' Asa result? Chinese investments are not hampered #y this arrangement? in fataording the orld Trade Report? Chinese investment ontinues to gro$e9ponentially throughout the ontinent'

Resoure See-ing

China is highly populated and ompara#ly poor in most natural resoures'Therefore? the strategi need for seuring supplies of natural resouresinluding food and ara#le land is essential' Already Chinese ompanies haveleased large portions of land in South Afria? (enya and Tan0ania primarily forgro$ing potatoes? farming pigs and /sheries' This is a testament to theolletive and politial motivations of a state led organi0ation' Rene$a#leenergy? is another signi/ant investment #eing made in Afria' Chinese /rm*t)sfhdod4+ has reently invested USD ;4M in a $ind farm in (enya' This isfurther evidene that Chinese investments in Afria $ill soon #e diversi/eda$ay from sole dependene on >atural gas and rude oil' %artiularly #eausereent disoveries in China sho$ that China is rih $ith Shale gas and have

already soliited US /rms to develop fra-ing plants there' Sino, Chementered into a USD 5'B 1 )oint venture $ith %ioneer >atural Resoures toaEuire a sta-e in the olfamp Shale in Te9as' Chinese giant SO8s *C>OOCand %etro China+ signed agreements $ith Shell to o#tain tehnial assistaneand support as $ell *8onomis Intelligene Unit Report 345:+'

Transport and Infrastrutural Development

There has #een signi/ant speulation a#out the e9peted inrease in thesi0e of Chinese Investments to Afria #y 3434' In fat? pundits estimate thatthe trade #et$een the t$o ountries should dou#le #y then' Some estimate$ith on/dene USD 544 #illion #y this time' Ho$ever? it remains du#iousho$ this $ill #e ahieved' If Afria does not improve its eNieny in produinggoods sought #y China it may #e diNult to )ustify the signi/ant and rapidinrease? $hih may also #e argued to ome from Chinese pumping goodsinto Afria' Ho$ever? Stephen Chan Argues that Afria may not yet have the

a#sorptive apaity or purhasing po$er to aFord the inrease in Chineseinvestments or trade' On the other hand? Chinese intentions to #uild


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infrastruture to failitate future inreases in trade and investments maysu#stantiate the intended USD 544 #illion mar-' ust as in the ase of the Sil-Road? China@s government has #egun developing mammoth transport andommuniation pipelines' The Cape to Cairo transport lin- is upon its /nalstage of ompletion? the Ta0ara rail$ay $hih onnets Jam#ia into the sea#y $ay of Tan0ania is also near ompletion and plans to e9tend similartransport net$or-s throughout the ontinent are intensifying' "or e9ample?future plans to #uild a net$or- rail aross the Demorati Repu#li of Congoare near /nali0ation' These rail$ay investments also provide ommuniationnet$or-s that integrate remote ommunities and reate potential mar-etdevelopment for other$ise impoverished and $ar torn areas' This level oflongterm strategi planning is also a means of Chinese $inning Gsoft po$er@throughout the region and setting the stage to ma-e easier future plans ofdiret investment and solidi/ation of Chinese ommerial interests'

%olitial Ris-

Chinese investments in Afria have sho$n to #e driven #y lo$ institutionalontrols in less developed ountries suh as Sudan? >igeria and Angola'

Traditional literature ditates that /rms invest in loations $ith lo$ politialris-' Ho$ever? in the Chinese ase it esta#lishes lose relationships $ith oftenautorati governments that share harateristis $ith its ommunist historyand ome to agreements far easier than $esterners have #een a#le tothrough negotiations' It has #een argued? that China #ased on its o$ninstitutional inferiorities *rule of la$ et'+ are #etter a#le to identify andommuniate $ith Afrians and therefore ahieve a ompetitive advantage

over their $estern ounterparts as a result' In addition? the redution of#ureaurati proesses and regulations failitates faster e9eution of #usinesstransations $hih helps provide another advantage relative to moreadvaned ountries that are ironially hampered #y ompliane issues thatstem from stronger more developed institutions' It $ould appear that theAfrian population $ho are desperately in need of investments to fuel gro$thand infrastruture favour the Chinese approah that is not only faster #ut alsoa more realisti model to pattern' Most emerging mar-ets are a$are of theGhina mirale@ and have seen the sudden asension #ased on the soialistmerantilism? it seems that the less the orporate governane $hen dealing$ith emerging mar-ets is the more attrative the deals to the host ountries'In many instanes? Chinese ompanies have out#id $estern ounterparts in

the region' The state #an- funding does augment their ompetitiveadvantage as $ell #eause /naning osts are argua#ly heaper and thelimitation of apital is a non, issue' The Uppsala shool determines the paeat $hih multinationals internationalise and the magnitude of theommitment' Ho$ever? the Chinese SO8 surpasses the traditionale9petations from this standpoint' In the ase of Afria? there is intensi/edinternationalisation often times irrespetive of the limited mar-et -no$ledgeprior and lo$er than average levels of traditional doumented due diligene'

Therefore? one must assess the degree of impat the institutional ators haveon providing a #uFer or safety net that allo$s seemingly ris-y investor#ehaviour to remain sustaina#le' It is evident that the o$nership frame$or-

of the Chinese SO8s have a heavy hand in determining the level of O"DI andits loation hoie'


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At the start of the Chinese GOpen door %oliy@ foreign diret investments $erelimited to appointed national hampions $ithin spei/ industries and $ereall state o$ned' Ho$ever? in 5=== Deng@s go glo#al poliy attempted toenhane Chinese /rm@s ompetitiveness #y allo$ing private /rms alongsideSO8s to invest a#road and gain international mar-et e9periene and-no$ledge *&oss 3455+' Although the ompany allo$ed private /rms toventure a#road the institutional frame$or- remained very muh under stateontrol' To date? many private ompanies retain the state as ma)orshareholders in order to operate and are signi/antly guided #y the state inthe reation of internationalisation strategies' In fat? In Afria $e /nd many%O8s loated there to omplement the plans of already esta#lished SO8s' Asa result? Chinese O"DI annot #e understood $ithout referene to the Chinesegovernment and its poliies *1u-ley et al 344;Q ugler"etsherin? 3454+'"or instane? the GOne China %oliy@ also plays a ma)or role on theinternationali0ation #ehaviour of China' herever? Tai$an attempts tointernationali0e? China attempts to out#id them $ith long term goals of#ringing all of China under one single administrative um#rella similar to $hat

has happened in the ase of Hong (ong'


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M8THODOLO!This part of the thesis $ill desri#e the methodologies used in onduting

the researh' The researh approah seleted for this study is the dedutiveapproah' This approah omprises of o#servation? data olletion then reKetingupon the Chinese O"DI trends to China and the /rms #ehaviour *Mainly of theSO8s+ to e9trapolate and analyse the o#servations upon the theories alreadye9isting' The hypotheses are also developed and are tested using the leastsEuares standard and ordinary analyses of regression' This is done in aordane$ith the prior literature as disussed'

2.3. 4esearch 5ethodologyThe term GMethodology@ is a very $ide term as it not only limits to the

proedures that are intended for the utili0ation in the olletion of data' It is asystemati and theoretial analysis of the proedures $hih are used in the

study' It omprises of the priniples and its theoretial analysis and the #ody ofmethods $hih are lin-ed $ith the topi hosen' As %ring *345:+ highlighted? themethodology of the researh has a #ig eFet on the researh results as $ell asthe researh@s e9peted frame$or-' This thesis is #ased on the Euantitative data$hih have #een ritially inorporated into the researh to /nd out thedeterminants of Chinese "DI to Afria and the impat on Institutional $ea-nesses*orruption? politial insta#ility et'+ on hoie of entry'

2.6.Dependent 7ariableThe dependent varia#le seleted in this thesis is the total amount of O"DI

of Chinese /rms in the period of 344,345' The olletion of data $as from the#ulletin of statistis of the Chinese O"DI from 344,345? $hih MO"COM ofChina pu#lished? the Repu#li of China >ational 1ureau of Statistis and SA"8$hih is in aordane $ith the researh done previously #y 1u-ley et al? 344B+'

2.2. Independent 7ariablesIn order for our hypotheses to #e tested? $e have follo$ed prior studies

and inluded three varia#les $hih are aptured using the motives esta#lishedfor "DI? $hih areQ resoure see-ing? mar-et see-ing and inKuene of theinstitutions' e have utili0ed the D% approah to test the mar-et see-ingChinese "DI hypothesis $hih is done #y alulating the potential of mar-et ofthe host ountry $ith the help of its D%' This information $as gathered from theIndiator of orld 1an- Development for the period of 344,345 using the three

years@ mean' e alulated the natural resoures of the host ountriesendo$ments $ith the ost ratio and the e9ports of metal #et$een the same


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periods? and alulating the mean again' Also? in order to test our hypothesis ofthe fators of politis and the "DI of China impat on Afria $e used the indiesof Corruption and the la$ rule ran-ings $hih is olleted for #oth ountries fromthe orld 1an- Development $e#site' "inally? in order to #roaden the naturalresoure theory see-ing #ehaviour $e have tested the eNieny of thehypothesis see-ing #y the Chinese O"DI and osts of la#our is also olletedfrom the $e#site of orld 1an- Development'

2.8. 9usti*cation of the Chosen 4esearch !pproachThe seleted approah of researh is the Euantitative approah and it is

the #est suita#le approah for this studio as it supports in gathering hugeinformation $hih is relevant and an #e then organi0ed and analysed #y theresearher' The seleted approah $ill help to reveal #road sorts of Euestionslin-ed $ith the study #y o#servation? data olletion then reKeting upon theChinese O"DI trends to China and the /rms #ehaviour *Mainly of the SO8s+ toe9trapolate and analyse the o#servations upon the theories already e9isting' Onthe #asis of these fats? for the present researh? the $riter has opted to selet

the Euantitative method for olletion of data and seondary information' Sine?this approah omprises of lot of theories and literature that is $hy it usesseondary data' This $ill #e utili0ed to $rite the revie$ of literature and thesoures are gathered from peer revie$ed artiles? )ournals? #oo-s and $e#sites'

2.&. The research -hilosophyThe present study fouses on identifying the determinants of Chinese "DI

to Afria and the impat on Institutional $ea-nesses *orruption? politialinsta#ility et'+ on hoie of entry' "or this? the researher had the option forseleting the three philosophies of researh $hih are namely positivism?Interpretivism and realism *%ring? 345:+' 1y onsidering the o#)etives and goalsof the present researh? the seleted philosophy for the researh to ondut thestudy $ill #e through Interpretivism' This is seleted due to the fat that it $illprovide an aurate and omplete results of the researh'

Interpretivism is the researh $hih allo$s the study for researhers tointerpret the elements of study #y integrating the human interest in the studyP*Cres$ell? 344=+' This means that the researhers $ho are follo$ing thisapproah thin-s that there is an aess to reality $hih is soially onstrutedand this philosophy is #ased on a ritiism $hih is positive' Interpretivism isassoiated $ith the position of philosophy of idealism and is used to mergetogether the approahes $hih are diverse li-e phenomenology? hermeneutisand onstrutionism et' *>eelan-avil? 3456+' These approahes neglets theo#)etivist@s vie$ $hih resides independently inside the onsiousness'

Moreover? this approah fouses on the various proedures $hih meaningfullyreKets to$ards the various pro#lems and its aspets *>eelan-avil? 3456+'

2.:. The 4esearch !pproach"redman? Hanna and Rodrigue0 *344+? said that the set of mind through

$hih the researher is a#le to dedue the outome and onlusion from thestudy is -no$n as the researh approah' It is a ruial for understanding theolletion of data? types of data the proedures of analysis' The researhers anhoose from #oth the dedutive and indutive approah' 1oth of theseapproahes have diFerent eFet on the outome of the study' In this thesis? thededutive approah is seleted' A dedutive is the approah $hih omprises ofhypothesis development $hih is #ased on the already e9isting theory' hen the

hypothesis is determined? the strategy of the researh is to test and design thehypothesisP' *"redman? Hanna and Rodrigue0? 344+'


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In short? this approah of researh is lin-ed $ith the dedution ofonlusions $hih are arrived from the premised or propositions' This approahallo$s the researher to formulate the hypothesis set and then test it' Thetesting of hypothesis is done $ith the help of methodology implementationrelevant to the study' The #ene/t of using this approah is that it saves time asthe outome is arrived straight to$ards the point *%ring? 345:+'

2.&. 4esearch 5ethodologyThe analysing of data and the olletion of data tehniEue are -no$n as

the researh methods *Cres$ell? 344=+' Seleting the right proedure for thestudy is ruial for the study as it supports in outlining the data types $hih areneeded for the researh' This an #e either a study #ased on Euantitative data orEualitative method' Seleting the right method of researh $ill help to ma-e surethat the researher is identifying the right type of olletion of data' 1ased onthis study? the determinants of Chinese "DI to Afria and the impat onInstitutional $ea-nesses *orruption? politial insta#ility et'+ on hoie of entry

$ill #e analysed and e9amined using the Euantitative method'2.: Type of data and ,ources of Data

As sho$n a#ove? this study solely relies on the Euantitative data $hih isderived from the o#servation? data olletion then reKeting upon the ChineseO"DI trends to China and the /rms #ehaviour *Mainly of the SO8s+ to e9trapolateand analyse the o#servations upon the theories already e9isting' The hypothesesare also developed and are tested using the least sEuares standard and ordinaryanalyses of regression' The seondary Euantitative data has #een gathered fromonline )ournals? sholarly resoures? #oo-s and $e#sites et' and has #eenanalysed $ith the help of Literature revie$'

2.#. Data Collection

9#95 #595V' #:9:e *1u-ley et al? 344=+The analysis using Multi,regression $ill #e applied to the sample of

gathered data' This thesis uses the eEuation of 1u-ley as sho$n a#ove as aguide to help the politial and institutional theories $hih ats as motivationfators for the O"DI of Chinese to the Afrian eonomy' ith the help of apositivist approah? preedents are applied and utili0ed to esta#lish thealternative and null hypotheses for the linear model of multi,regression *1u-leyet al? 344=+' The data arhival *trend analysis and harts+ along $ith the asestudies are appropriately inserted to reinfore and support the arguments for themar-et and institutional see-ing perspetives related to the O"DI of Chinese toAfria' The data is gathered from the : ountries and this sample of ountries

inlude Ethiopia Nigeria South !"rica and #an$ania%In the 1u-ley eEuation? G@ signi/es the total amount of the O"DI ofChinese in the ountry )? or the varia#le $hih is dependent' 5 to : are thevaria#les $hih are e9planatory $here the onstant is 9 and e is the value ofresidual *1u-ley et al? 344=+' e /rst e9plored the : ountries sample in $hihthe /rms of China have invested #et$een the periods of 344 to 345 and thentheir impat on the mar-et? institutional varia#les and politis are investigated toloations on O"DI'

2.;. Data !nalysisSine the researh relies on the Euantitative data? the researher has

olleted the data through the regression method' The researher has arried out

the analysis #y means of onstant omparison $ith the theories'


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2.


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C&!'#ER () !N!L*SIS !ND DISC+SSION4.. Intro!uction

This part of the researh initiates $ith the regression /9ed eFetsreporting using the averages of /ve years as sho$n in Ta#le 5' In the /rstolumn of the ta#le $e an see the spei/ations #aseline $hih

omprises of the #asi varia#les of Solo$ model' The outputs are in linepredominantly $ith the model of theoretial preditions suggesting thatthe model of Solo$ /ts $ell for the Afrian employed eonomies dataset'

The dependent varia#le lagged had sho$n a highly signi/ant oeNientand a positive oeNient $hih is 4';7;' The other /nding estimates arelosed to the gro$th regressions of the Solo$ model $here the ountriesof Afria are inluded e9pliitly? for instane 1u-ley et al *344=+ sho$edthat the varia#le of investment is highly signi/ant and positive' Inontrast to this theory? the population gro$th estimated to #e positive?relatively small in si0e and al#eit not signi/ant' "inally? the R,sEuaredregression $ithin *$hih omes out to #e 4'B6+? $e an /nd out therepressors $hih desri#es $ithin the ountry high portion of the D%variation per apita gro$th $hih sho$s that the model seleted /ts $ellrelatively'

4.". #ulti$regression AnalysisIn the other step? the model is e9tended $hih omprises of the

priniple interest varia#les as sho$n in 3nd Column' The spei/ationsnamely omprises of the gro$th rate terms,of,trade of the ountries inAfria? the Ko$ of "DI from Rest of The orld *RO+ and China? theooperation pro)ets of the Chinese presene? the Ko$s of aid from the

RO as $ell as the imports total from the e9ports total of the RO andChina? respetively' 1y omprising these varia#les additionally? 5;o#servations are losses #eause of the data missing for these measures'>evertheless? there is a marginal loss of data? the level of signi/ane andthe sign of the ma)or ontrols do not alter muh and the /t modelenhanes to 4';6 $ithin the R,sEuares and for that' 1oth the "DIestimates sho$ a sign $hih is positive $hile those from the aid of foreignand from Chinese and RO ooperation of eonomy sho$ a sign $hih isnegative'


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et all of these oeNients $hih are four in total are not signi/antand sho$s that these fators don@t play a role $hih is #ig in thedesription $ithin the Afrian ountries gro$th variation' hen tal-ing

a#out the measures of trade? $e an see the impats of the eonomigro$th $hih matters' hile the Afria@s total China e9ports oeNient is


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positive #ut is not signi/ant? the imports total from China sho$ anegative and a signi/ant impat on the rate of gro$ths' The traderelations are analysed at the same time $ith RO' The impats areontrary someho$ to those $hih have relations $ith China' The estimateof e9ports again sho$s a positive sign and the imports in order to sho$

the impat of the D% lagged varia#le per apita on the per apital D%gro$th? $e have to retify the oeNient estimated #y o#taining 4'53$hih is done #y su#trating 5' In the /9ed,impats regressionorrespondene? Choi oun *345+? /gure out that the oeNients $hihis ,4'34 is eEual to it' The magnitude diFerene is due li-ely to the fatthat their researh omprises of ountries that are developing to around;6 in num#er omprising of ountries in >on,Afria also'

There is a negative sign as sho$n in the oeNient? #ut thesigni/ane of the statistis have #een altered' The e9ports total of Afriato the RO are ruial $hereas the imports total from the RO are notsigni/ant $hih sho$s that the RO e9ports might lead to the gro$th ofeonomy in Afria' Till that time? these outomes indiates that theyshould #e treated #it as ausations #ut as orrelations'

In the rdolumn of Ta#le 5? $e added the varia#les $hih ontrolsthe distortions of the maroeonomist fators as $ell as for the intensityonKits ourrene' The estimates of these measures $hih are t$oenter $ith the sign that is negative in our spei/ation? #ut there are notsigni/ant statistially' Regarding regression most nota#ly? the result ofthe other estimates espeially those of the ones $ith priniple interest?the varia#les are not impated #y adding the rate of inKation and the#attle death num#ers although four points are loss on further

o#servations' "iguring out the potential impat of gro$th on theseevidene related to the measures of trade? the ne9t diFerentiation is#et$een non,resoure and resoure trade as seen in :rth olumn' Thefour total varia#les of trade are replaed #y e9port.imports varia#les$hih are disaggregated for non,resoure and resoure trade' Only one ofthe oeNients of eight is signi/ant statistially $hih determines theeonomi gro$th orrelation that is imports of non,resoure from China$hih sho$ a sign that is negative' The orrelation $hih is negative is#et$een the imports total from the gro$th of eonomy aross Afria andfrom China? as seen in rdand 3ndolumn' e an see that these seems torise in non,resoure segments imports' As sho$n the non,resoure goods

dominane in imports total from China *$hih in 3453 aounts for =B


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materials pries? spei/ally for the metals and oil from Afria? $hih thenleads to the inline in the trading terms' This outome is aided #yDrogendi)- 1lom-vist *345+? $ho are sho$ed the impat $hih ispositive for China on diFerent pries of ommodity and varieties' At thesame time? the enhanements in trading terms of the ountries in Afria

ould also #e related to the rise from the pries of lo$er imports? forinstane? from the lo$ ost manufatured goods in China? as theseimports of the good inreases dramatially over the past 56 years' hatmost matters is the orrelation hanges $hih is positive in the tradingterms and the gro$th of eonomy in the ountries of Afria'

In order to analyse deeper the trading terms impat? the interationterms are omputed $hih means that the hanges in the trading terms ismultiplied $ith all the varia#les of trade respetively' This is done toe9amine the impats $hih are non,linear' hile most of the termsinteration? $hether at a disaggregated or aggregated level are notdramati? there is a stand out of these t$o e9eptions' The terminterations $ith the China@s total e9ports and the China e9ports ofresoures? $hih are highly signi/ant and positive respetively at oneperent level of signi/ane as seen in olumn 7thand 6th' This result isstrong omprising of all the terms of respetive interations at the sametime and sho$ that the natural resoures e9porting to China is lin-edindeed $ith gro$th level $hih is higher' 1ut this outome sho$s up eitherthrough alterations diretly in trading terms or through interationsindiretly' >e9t stage? $e opy all the spei/ations of the MM regressionmodel system using it in order to address the onerns of endogenous*and the inlusion of #iasness due to the dependent varia#le lagging+' In

these lagged varia#le $hih is dependent? these regressions? populationgro$th? investment? inKation and all the four e9port and import totalvaria#les? all the e9port and import non,resoure varia#les? as $ell as theaid and the "DI from the RO are regarded as endogenous'

In order to limit the endogenous varia#les num#er *and thus theinstruments num#er used+? $e hanges the set in trading terms? politialsituations? $ars? and all the e9port varia#les natural resoures ase9ogenous' It is assumed that the ountries of Afria are too small to havean eFet on the pries of the $orld mar-et *tal-ing in terms of trade+ andthat the $ars and politial insta#ility mainly have a huge impat on thegro$th of eonomy #ut not vie versa' et hanging #oth varia#le status

from endogenous to e9ogenous impats hardly on the outome' Thee9ports of the natural resoures are the ma)or driven #y the fat that$hether the ountry has or not the natural resoure endo$ment' Causalityreverse is less of a pro#lem in this instane' Again? the ma)or outomesare not impated #y all the varia#les of trade delaration as endogenous'

The "DI to Afrian and the aid of China is traded as e9ogenous' Asindiated #y 1road man *3456+? the "DI of China to Afria is not impated#y D% as soon as $e e9lude South Afria from out sample' So? the aidand "DI from China predominately is onentrated in the ountries ofAfria $here there is an endo$ment of large resoures $hih is

e9ogenous'


20/37

A detailed impat analysis of the Chinese ra$ materials demand onthe trading terms of Afria is #eyond this researh@s sope as $e fousmainly on the impat of gro$th' The 7th and 6th olumn of the ta#lesho$s the model of spei/ations preferred' As they omprises of all thevarious aggregated ontrol and disaggregated varia#les of trade and the

terms of t$o interations' All the results $hih are not reported an #egathered #y the reEuest of the author' Using the instrument num#ers$hih is large may over /t the varia#les $hih are endogenous and may$ea-en the ,test of Hansen of the )oint validity of these instruments' Toretain the instrument num#ers to a minimum level? $e utili0e the option ofSTATA ollapse in all regressions' This sho$s that the instrument num#ersare al$ays $ell #elo$ the ountries num#ers' Overall? the outomes assho$n in 3ndta#le? are in line #roadly $ith the results $hih have /9ed,impats' The dependent varia#le is lagged and is signi/ant al$ays at 5orth are added *as seen in Column 5 and 3+'

This gives more e9amining on the results as they are sensitive to thesample si0e that is larger and omprises of all the ountries in Afria#asially for $hih the data is seleted' Through the ountries in >orthAfria diFers from those #elo$ in the Sahara? they have huge investmentand trade lin-s $ith China as $ell *Ramasamy et al? 3453+'

In rdand :rth olumn? the initial su#,Saharan sample of Afria again#ut e9luding all the four islands of Afria' It an #e argued that the

islands $hih are small li-e Mauritius? Cape &erde? Comoros diFers fromthe Afrian Sahara mainland' Argua#ly? Madagasar may #e applied to this


24/37

as $ell' Historially? Mauritius and Madagasar have had a diaspora oflarge Asia $hih may enhane the impat of the eonomi lin-ages of theChinese eonomy urrently' hat is more essential is that these islandtrade omposition to the eonomies is very diFerent from the Afrianmainland' "or instane? the higher trade.D% level ratio of Mauritius is

very diFerent from the level of e9ports and from the rest of the Su#,Saharan Afria manufatured goods'

"inally? in the 7thand 6tholumn? South Afria is e9luded from theSahara Afria sample' As desri#ed in Seond setion? the motives ofinvestment and trade for China in the region of South Afria diFers asompared to other partners of trade in China and the destinations ofinvestments in Afria' This is partly #eause of the levels of inome $hihare higher there is a larger mar-et for South Afria for the e9ports ofChinese produts manufatured' This may impat on the results of theresearh? in partiular to the varia#les of trade' Moreover? the deisions ofChina to invest in South Afria is more li-ely to #e driven #y motives $hihare hori0ontal in omparison to other ountries in Afria'

In order to failitate the results omparison in Column 5? and 6 *3?:? and 7+ in the rdTa#le in regards to the spei/ations preferred? that isin Ta#le 5 6th and 7tholumn' The variations sample in the rd Ta#le islearly on/rming on the /ndings #aseline as it is also a#le to repliatethe outomes' #he North !"rican countries included in this researchare Ethiopia Nigeria South !"rica and #an$ania%The si9 regressionsthroughout sho$ the same results of Eualitative for all the measures$hih are signi/ant' This is applia#le to the diFerent varia#les of tradeas $ell as the t$o terms of interation $ith the alterations in the trading

terms' Moreover? not only there are varia#les $hih are signi/antly sameon a level $hih is ompara#le? the estimates magnitudes is also similar'


25/37

%ointing to$ards the he-s of ro#ustness $ith diFerent averages of

period? the /ndings of the researh is presented in :rth Ta#le' Again? therun regressions for the t$o preferred spei/ations is done using the


26/37

averages of four years *olumn 5 and 3+ and the averages of three yearsas seen in rd and :rth olumn' hile this method allo$s for thee9ploitation of a more variation in the data over time? $e may not #e a#leto ontrol fully the impats of the #usiness yle'

Similar to the samples $hih are diFerent? $e again /gured out a

lear support for the ma)or results' Signi/ane and sign levels of all thevaria#les ontrolled are not impated muh' This is also applia#le to thepriniple of interest varia#les' The impats of displaements is still /guredout for the o,eNient $hih are estimated for the imports of non,resoures from China $hih are signi/ant and are negative at 6< level ofsigni/ane or #etter' !lso the i,ports total "ro, China are linkednegatively with that o" growth o" econo,y *Laharite? 345+' etthe e9ports total in ontrat to the rest of the $orld are no longerorrelated positively $ith that of eonomi gro$th' In ontrast to thesetion previously? the inKo$s of "DI from China is found out to #e positiveand signi/ant at level of 54< signi/ane $hen adding the tradevaria#les $hih are disaggregated and uses the averages of four year *asseen in olumn 3+' et the outome is not so strong if more aggregatedvaria#les of trade are used or years average period if used'

The Chinese "DI? trade and aid in Afria and the impat of this onthe gro$th in eonomy is investigated thoroughly in this researh' Inontrary to the other studies empirially? it is analysed that there arethree ma)or hannels of the ativities in China at the same time' The/ndings empirially an #e summed up as follo$s' The "DI Ko$s fromChina generally and the rest of the glo#e as $ell as the ooperation ofeonomy and "DI from other ountries seems to play no main role in the

ountries li-e Afria and on their development of eonomy' #he !"rican0Sino trade however shows an i,pact% #he results show that thei,ports o" !"rican "ro, China especially the non0resourcei,ports have an i,pact which is negative on the econo,ic growthin !"rica *Ramasamy et al? 3453+' This /ndings is strong to suing variousperiod averages and samples as $ell as the approah of an instrumentalvaria#le' Although not strong in all the spei/ation? the e9ports of Afriato the glo#e *e9luding China+ are lin-ed positively $ith the Afriangro$th' Finally it is revealed that the econo,ies o" !"rica whichhave natural resources 1ene/tted "ro, the rising de,and o"China "or ,aterials raw 1ecause 1oth have positive changes in

trading ter,s and enhancing e-ports to China "or naturalresources when using the ter,s o" interaction%

In regards to the impliations of the poliy? these outputsdemonstrated learly that the hallenges and opportunities $hih arefaed #y these ounties in Afria $hen dealing $ith ne$ trading partnersli-e China' The e9ports of Afria of the natural resoures are an o#viousinstane for #oth these situations' These opportunities arise #eause ofthe total higher earnings of e9ports of the rih resoure ountries in Afria'#hese "unds which are generated additionally "ro, resource rich!"rican countries and through trading needs to 1e spent well or

instance on the purposes o" develop,ent like education orin"rastructural develop,ent% &owever due to political insta1ility


27/37

and corruption in !"rican countries like Nigeria +ganda andSierra Leone these "unds are not used in econo,ic develop,ent*1road man? 3456+' So? the do$nside is the ma)or hallenge and in orderto esape the urse of resoure $hih arises more in the ountries li-eAfria $hih have $ea- institutions *1road man? 3456+'

Similarly? the onsumers of Afria ta-e advantage from the importsof lo$,ost of the goods of on,resoures from China' This also isapplia#le to the produers of Afria $ho are importing the intermediategoods at lo$ ost for the non,resoure goods from China' Therefore? theonsumer levels $elfare is arisen and the produers #eome moreompetitive' To ontrast that? a ro#ust impat on displaement is revealedas the produers in Afria are not a#le to ompete $ith the ounterpartsfrom China' This is applia#le to the intensive,la#our mar-et of the goodmanufaturers? li-e foot$ear te9tiles? furniture $here the produers ofAfria have had a mar-et share $hih is onsidera#le in the domestimar-ets so far *Rygg? 3453+' hile there is an inrease $hih is temporaryin terms of the level of protetion of trade *non,tariFs and tariFs #arriers+level $ill allo$ the produers of Afria to -eep up their shares of mar-etfor a suita#le poliy option in the long run and must #e grounded for anenhanement in the level of ompetitiveness' In this aspect the /r,sin !"rica are lacking 1ehind the co,petitors "ro, China%


28/37

The impat of displaement have to #e regarded in the /rms ofChina perspetive $hih dominates the produt.setors ategories $here

there are non,ompetitors from Afria' Still? there is a Euestion $hetherthe rise on the glo#al mar-et for China may o#strut the opportunities of


29/37

e9port from the /rms in Afria in other produts $hih are la#our,intensive? partly #y the diversi/ation of e9ports or #y the value hain#eing moved up' So far? the proof is not in favour of the ountries fromAfria as other ountries and China espeially has #lo-ed the segment ofmar-et *Rygg? 3453+'

4.%. &uckley E'uationIn regards to "DI *"oreign Diret Investment+ many of the ountries

that are developing have ta-en advantage greatly espeially China' Theresults are insigni/ant from out regressions $hih onerns "DI from #oththe rest of the $orld and China $hih may point out to an "DIenvironment $hih is insuNient in the ountries in Afria rather that an"DI displae not playing the role for the eonomi gro$th in Afria' So far?the Afria@s most foreign investment has #een for "DI resoure see-ing$ith fe$ relations $ith other setors' #he govern,ent o" !"rica should"ocus thus on attracting the vertical 2e3ciency0seeking4 FDI 1ydeveloping "or the private sector a 1etter environ,ent%This ould#e ahieved #y giving a more transparent and simpler environmentregulation? upgradation of infrastruture? #uilding and enhaning thelevels of eduation and also oFering inentive on investment li-ee9emptions on ta9 to the development of Jones for Speial eonomy thathave $or-ed $ell in other ountries that are developing espeially China*Rygg? 3453+'

9#95 #595V' #:9:e *1u-ley et al? 344=+The government of Afria have to ma-e sure that they do harness

the positive impats potentially for the investment from foreign ountries'

So far? the investment in China is #ased often on the isolation from therest of the domesti eonomy' 8nhaning the assoiations #et$eeninternational ompanies and the loal eonomy is thus essential toenhane the impat of gro$th for foreign investment' This ould enhanethe spill overs of tehnology and enhane it for the loal ompanies'Synonymous to trade? the governments of Afria should target setors$hih are spei/ that are essential for the development of eonomy andthen diret the investment of foreign ountries to$ards these segments'

This ould enhane the apaity of #oth loal and produtive investment?#oost the employment levels loally and foster the Afrian ompany@sintegration into the $orld eonomy *Laharite? 345+' 8ssentially? a

regional oherent poliy of integration and frame$or- $ould #e importanthighly to #oth the enhanement in the Ko$s of "DI and improve theimpats of spill over'

Although? a signi/ant impat on the gro$th of the Chinese aid toAfrian ould not #e /gured out? it is nevertheless an essential part of thepoliy of China Afria and its deal of pa-age to Afria' #he econo,iccooperation o" China pro5ects in !"rica are growing steadilyparticularly in the in"rastructure /led 1ut it is the i,pact on thegrowth on !"rican econo,y which ,ay still re6uire so,e ti,e toe,erge%!lthough the Western donors have 1een widely critici$ed

"or its practices aid in the countries in !"rica 2especially thosewhich are poor and have weak governance and hu,an rights4% So?


30/37

the ooperation of China pro)ets gives an alternative $hih is via#le formany of the ountries in Afria' This implies that the donors in the estmay have to ad)ust all their poliies in Afria to a Chinese gro$ingpresene on the ontinent' "or the poliyma-ers of Afria? it implies on theother hand that they ould #eome limit dependent on the aid #y estern

ountries and the attahed onditions' >o matter $hatever the soure?the impat in general of the aid on the gro$th of eonomy is ontroversialand it reEuires a great deal on ho$ the ountry of host utili0es it' +p tonow ,a5ority o" the govern,ents in !"rica lack a coherent andclear strategy when dealing with partners that are new like China%Unfortunately? due to $ea- governane and praties the government ofAfria is not ta-ing full #ene/t from the opportunities $hih arise due tothe investment and "DI in Afria from China'

4.4. OS egression esultsTa#le 6' OLS regression results? dependent varia#le Chinese out$ard "DI344,3447

In the initial regression? the institutions and the natural resouresimpats is not added' The outome sho$s that only the varia#le $hih islin-ed signi/antly $ith the out$ard "DI of the Chinese ountries is theD% of the host ountry' In other words it can 1e said that theOutward FDI "ro, China to the countries which have a 1igger,arket is ,ore attractive% There are no other varia#les that aree9planatory and are not signi/ant' In spei/ situations? this estimationmay reveal that no impat on the host ountry@s resoures that are naturalor institutional level impats on the Chinese "DI inKo$'

In the seond regression $e an see that the lin-age #et$eeninstitutions and resoures is too empirial and sho$s a restritive model'hen adding the lin-ages #et$een natural resoures and institutions $ean get a negative oeNient and a signi/ant one for this term? $hile theoutome other$ise are unhanged Eualitatively' In other $ords? theinstitutions inKuene is re)ets and the Chinese investments and naturalresoures #ased on the initial regression $ould deemed to #e premature'In "act what the i,pact o" interaction and its signi/cance showsthat the i,pact o" the natural resources on the outward FDI o"China relies on the host country institutions% It ,eans that i"there is corruption and political uncertainty that the FDI o" China

is negatively associated with econo,ic growth o" !"rica% #heinstitutional inde- can 1e recalled which runs "ro, negative 7%8to a positive 7%8% For the countries having a negative inde- 2i%e%1ad institutions4 the natural resources attract the invest,ent"ro, China% Fro, the countries having a high inde- 2which ispositive4 and with good institutions the invest,ent "ro, China isdiscouraged 1y the resources 2natural ones4% The $orse theinstitutions in the host ountry *in our ase Afria+? the more is theinvestment attrated #y natural resoures' Conversely? the impat of theinstitutions also depends on the resoures that are natural li-e diamond?

gold? oil? gas and metal et' If there are more natural resoures in theountry li-e Afria? the more is the "DI from China is attrated #y


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institutions $hih are poor' #o shorten that the outward FDI "ro,China is attractive to those countries which are a ,erger o" thepoor institutions and having larger natural resources%

Ta#le 6 sho$s the ma)or outomes from this thesis eonometrianalysis? there the average annual out$ard "DI of Chinese Ko$s from theperiod of 344,3447 are regressed of the e9planatory varia#les onaverages annually' The initial olumns of the ta#le desri#es the results

estimation for the sample full of 54: ountries for $hih there is anavaila#le data? $hile in the last olumns there is a split in the sample intonon,O8CD and O8CD ountries'

It is also tested in the thesis that $hether the la$ inde9 rule $ithother indies of institutions $ith natural resoures leads to the results thatare similar' Interestingly? the outome are similar Eualitatively for morethe reKeting indies the institutions of the private setor in some sense'It means that the governane of 1I indies $hih measures theorruption ontrol? governess eFetiveness? politial sta#ility and theEuality of the regulatory *#ut not the Internal Transpareny C%I+

*Aggar$al? 3455+' Ho$ever? neither of the institutions not their lin-ages$ith the resoures are ruial $hen the demorati inde9 of %olity I& isused as the pro9y for institutions' And the similar outome is o#tained ifthe average inde9 of "reedom House is used or the voie of 1I is used orthe inde9 of aounta#ility' In other $ords? the "DI of China does notappear to the driven fator for the ountries that are undemorati? rih nresoure or not? #y motivations ideologially *1u-ley et al? 344=+'

The outomes sho$ that there are resoure type $hih are relatedpartiularly' Changing the natural resoure #road inde9 $ith the indiesthat are narro$er for the D% of fuel e9ports or the metals or ores e9portsin D%? the results signi/es that the term interation is dramati only for

the e9ports of fuel' #his advices that the resource o" petroleu, is o"the ,a5or interest "or the FDI 1y China%The individual fuel oeNient


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of the fuel term is not dramati' Ho$ever? so again this varia#le is onlysigni/ant $hen there is a lin-age $ith institutions' A ro#ustness testrange sho$ed the impat of this to #e the one $ith resiliene' A negativeand signi/ant interation impats is there even if there is a ontrol $hihis additional for the varia#les if it is inluded li-e interest rates? e9hange

rates? eonomi gro$th? per apita D%? infrastrutural development andeduational levels' Additionally? the outome is o#tained due to thero#ustness of the inlusion of other varia#les of institution? li-e all thegovernane varia#le for 1I? the "reedom House rights of politisaverage? the inde9 of ivil li#erties and their press inde9 freedom and thedemoray inde9 of %olity I&' And $hen the results are analysed? it ameto #e similar' So? adding regional dummies? a ultural inde9 of pro9imity toChina? a ommon #order $ith China dummy? and a land lo-ed ountrydummy' >one of these institutional varia#les of other ontrol proved to #esigni/ant'

The utili0ation of other pro9imities attempts for the infrastrutureoutome in the issues of multi ollinearity' The inlusion of anInternational Transpareny %ereptions of Control Inde9 lead to the issuesof Multi ollinearity' The outome from the sample that is omplete thusadvies that there are t$o ma)or determinants set for the Chinese "DIout$ardQ natural resouresQ si0e of mar-et merged $ith institutions thatare poor' Dividing the sample into non O8CD and O8CD ountries sho$sthat these determinants set are lin-ed $ith various -ind of ountrieshosted' The rdstage of Ta#le 6 sho$s the outomes $hen rerunning thema)or estimation of the ountries of O8CD only $hih are in the sample ofthis researh amounted to 36' #he only ,a5or varia1le which showed

signi/cance is 9D' which advices that the FDI o" China intocountries that are rich is driven 1ecause o" the si$e o" ,arket%The:rth olumn of the ta#le sho$s the outomes of the non,O8CD ountries?and sho$s that the determinants of the "DI from China? D% is not asigni/ant fator #ut that the China distane deters the investment intothese ountries? so in the full sample this doesn@t ame up to #esigni/ant sample' More interestingly the fous given? the institutions andthe natural resoures appear to #e the "DI determinants to the ountriesof non,O8CD mainly ountries' In fat? #oth the term of natural resoureand the lin-age term are signi/ant for the ountries of O8CD'

The oeNient is positive for the resoures and it is suggested that

the "DI of China is attrative to the ountries $hih possess naturalresoures' There is a lin-age $hih is negative and impat on the indiesthat the degree if that attration relies on the institutions? and that theresoures attration is $orse and greater $ith that of the environment ofthe institution' The impat of natural resoures on "DI from China is alsosigni/ant eonomially' "or a ountry $hose sore of institution is ,5'6$hih is the sore of Angola? that oeNient of the resoure that arenatural is =B?55 appro9imately $hih means that an inline in the e9portsof natural resoure in 54< of D% points #ring an investment $hih isadditional for China of almost USD 54 million'

4.*. Discussion an! Fin!ings


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To sum this up? the O"DI of China is more attrative to the mar-etsthat are large? and the ountries having poor instrutions and morenatural resoures' The former is lin-ed to the mar-ets that is advane?$hereas the latter is the O8CD ountries ase' The results of the thesisindiates that D% is onsistent $ith the eEuation of 1u-ely et al' *344=+'

Ho$ever? it did not /gure out the impat $hih is unonditional for theChinese "DI institutions as sho$ed #y 1u-ley et al *344=+ eEuation norare the resoures $hih are natural are insigni/ant as to their researh'Instead the results o" our thesis advices us that the i,pact o"institutions is related inherently to the natural resources:institutions that are weak and the ,ore is the OFDI o" China it isattracted 1y natural resources%The diFerent in the outome from theprevious issues of multi ollinearity *1u-ley et al? 344=+'

#he /ndings o" this research are consistent with the ChineseFDI idea and this is done to e-plore those countries which havelarger natural resources and have poor institutions% Ho$ever? as

earlier seen? it is also possi#le that the Ko$s of Chinese investment havingthese harateristis? sine these sho$s the only loations availa#le for alateomer li-e China $hih $ere already e9ploited #y estern ountries'In an attempt to test the interpretation $hih is seond and if it hold? #yinluding the gro$th in the e9ports of resoures as a varia#le $hih ise9planatory' If the Chinese Ko$ of investment to the ountries that haveresoures that are une9ploited and hene are gro$ing still in naturalresoures terms? this should ma-e the lin-age insigni/ant' Ho$ever? theinstitutions terms and the resoures remains dramati $hen inluding thisin this term This aid lends to the e9planation of the former that China

ta-es #ene/ts of those ountries having $ea- institutions and large poolof resoure that are natural *1u-ley et al? 344=+'


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The results of the thesis also lend help to the determinants of the"DI of China from that of other ountries' The estimations rerunning using"DI inKo$s total ated as a varia#le that is dependent' There is no diretsigni/ant impat on "DI and natural resoures? not it is the lin-age#et$een institutions and natural resoures signi/ant' This also hold true

for the non O8CD ountries hosted as a su# sample' In omparison? theChinese "DI? total "DI is attrated more to institutions that are good*1u-ley et al? 344=+'

The paper outome sho$s that the natural resoures andinstitutions have an impat $hih is interative on the O"DI of China' The/nding of this thesis is onsistent $ith the China image *1u-ley et al?344=+' 1u-ely et al *344=+ also uses metals? ores to the natural resourespro9y $hose outomes sho$ that it is not the type of resoure that isrelevant and to #e added in the analysis' The /ndings of this researhsho$ that the omparison of the prior studies advie that O"DI from ChinadiFers from other regions "DI? in their attration to those ountries thatare governed poorly #ut are rih in the resoures that are natural' These

patterns of investment diFers li-ely and reKets the harateristis#a-ground to the eonomy of China' This in spei/ is the stateo$nership predominant of the glo#al ompanies and the onte9t of Chinainstitutions' Though the "DI Ko$ $hih is aggregate from China and fromthe regions that are diFerent is not same? #ut similarities might e9ists onthe level of setors' %resently? the "DI Ko$s disaggregates #oth #yloation and setor is not availa#le for ma)ority of ountries? China also' Tosum up this researh? the $orse the environment of institutions of the hostountry? the more it is attrative for the O"DI from China to e9ploit thenatural resoures of ountry' These outome adds signi/ane to theunderstanding of O"DI from China? sine the prior studies have not added

these interation impats and therefor $ere not a#le to apture therelation that is important #et$een institutions and rihes'


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Hong? 8' and Sun? L' *344B+' Dynamics of internationali)ation and outwardinvestment' La9en#urg! IIASA'

Intelligent 8nergy unveils integrated ne9t,gen unit in apan' *345:+' FuelCells =ulletin? 345:*7+? p':'

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Laharite? ' *345+' Cheng Li? ed'? ChinaXYZs 8merging Middle Class!1eyond 8onomi Transformation'9 OF C0I -OIT ,CI? 5=*5+? pp'54,54:'

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diret investment! Loation hoie and /rm o$nership'9ournal ofworld business?8#*5+? 5B,36'

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Spe0iale? H' and Carpenter? D' *3455+' Aualitative research in nursing'%hiladelphia! olters (lu$er Health.Lippinott illiams il-ins'


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Tsiris? ' "arrant? C' and %avlievi? M' *345:+'! Buide to 4esearch 'thicsfor !rts Therapists and !rts E 0ealth -ractitioners' essia (ingsley%u#lishers'

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International Mangement for China Dissertation