Determinants of Chinese Direct Investments in the European Union

21 Pages Posted: 14 May 2015

See all articles by Christian Dreger

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Yun Schüler-Zhou

German Institute of Global and Area Studies (GIGA)

Margot Schüller

German Institute of Global and Area Studies (GIGA)

Date Written: May 1, 2015

Abstract

This paper analyses the determinants of Chinese direct investment (DI) in the European Union (EU). Evidence is based on panel Poisson models drawing on two investment monitors for individual projects. We distinguish between the numbers of greenfield investments (GIs) and mergers and acquisitions (M&As). The findings indicate that market size and trade relationships with China are the primary factors driving Chinese DI in the EU. In contrast, more business-friendly institutions do not foster DI. Chinese enterprises might be risk averse, in other words prefer to choose their activities in regions with less competitive markets. The striking difference between GIs and M&As is related to unit labour costs. Higher costs make the host country less attractive for the establishment of new firms, but do not affect the involvement in existing firms. The sectoral dispersion of Chinese DI in the EU has not changed much since the global financial crisis of 2008. Most relevant shifts have occurred in research and development (R&D), where low-income EU countries have gained in attractiveness.

Keywords: China FDI, Greenfield investments, mergers and acquisitions

JEL Classification: F21, E22, C25

Suggested Citation

Dreger, Christian and Schüler-Zhou, Yun and Schüller, Margot, Determinants of Chinese Direct Investments in the European Union (May 1, 2015). DIW Berlin Discussion Paper No. 1480, Available at SSRN: https://ssrn.com/abstract=2605831 or http://dx.doi.org/10.2139/ssrn.2605831

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Yun Schüler-Zhou

German Institute of Global and Area Studies (GIGA) ( email )

Neuer Jungfernstieg 21
Hamburg, DE D-20354
Germany

Margot Schüller

German Institute of Global and Area Studies (GIGA) ( email )

Neuer Jungfernstieg 21
Hamburg, DE D-20354
Germany

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