Outward Direct Investment, Firm Productivity and Credit Constraints: Evidence from Chinese Firms

• Author: Yiping Huang,Yuyan Tan,Bijun Wang,Miaojie Yu
• Date: 01 February 2016
• Published date: 01 February 2016
• DOI: http://doi.org/10.1111/1468-0106.12152

OUTWARD DIRECT INVESTMENT, FIRM PRODUCTIVITY

AND CREDIT CONSTRAINTS: EVIDENCE FROM

CHINESE FIRMS

BIJUN WANG Institute of World Economics and Politics Chinese Academy of

Social Sciences

YUYAN TAN Peking University

MIAOJIE YUPeking University

YIPING HUANG*Peking University

Abstract. China is currently the third largest country in terms of outward direct investment (ODI),

with the investors mainly being state-owned enterprises. This presents a question: What inhibits

private enterprises from increasing ODI? Using a firm-level panel data set for Zhejiang Province in

China, we examine the impact of firm heterogeneity on private firm ODI. We have three main

findings: first, a higher productivity level contributes to better access to ODI, and increases

ODI value as well; second, lowering a firm’sfinancial constraint level can increase both the prob-

ability and volume of ODI; third, productivity cannot offset the negative effect of financial con-

straint on private firm ODI.

1. INTRODUCTION

China is currently the third largest country in terms of outward direct investment

(ODI). Since China’s Ministry of Commerce started to report annual data on

ODI in 2003, the flows of China’s ODI have successively increased. The average

annual growth of ODI from 2002 to 2013 was 39.8% (Department of Commerce

et al., 2014). While ODI in the world decreased by 18 percent in 2012, ODI value

from China grew by 17.6 percent, hitting a record US$84bn, and, for the first

time, China became the third largest country in terms of ODI value, right behind

the United States (US$329bn) and Japan (US$123bn) (UNCTAD, 2013). In

2013, China’s ODI grew even higher, reaching its highest level of $107.8bn.

Another significant feature of China’s ODI is that state-owned enterprises

(SOEs) play an important role, especially central SOEs, which, by definition,

are controlled by the central government. For instance, central SOEs’non-

financial ODI flows amounted to US$43.524bn in 2012, accounting for 56% of

China’s total non-financial ODI flows (Department of Commerce et al., 2013).

This raises some interesting questions: Why are SOEs the primary overseas

investors from China and what inhibits the ODI of private enterprises?

*Address for correspondence: National School of Development, Peking University, 5 Yiheyuan

Road, Haidian District, Beijing, 100871, China. E-mail: yhuang@nsd.pku.edu.cn.We are grateful

to the key project ‘China’s outward foreign direct investment and economic upgrading’of the Insti-

tute of World Economics and Politics, CASS for financial support, as well as the key research pro-

jects of social science and humanity of the Ministry of Education (project number: 11JJD790027).

The authors would like to thank Mike Bertini for editorial assistance.

Pacific Economic Review, 21: 1 (2016) pp. 72–83

doi: 10.1111/1468-0106.12152

© 2016 John Wiley & Sons Australia, Ltd