Do institutional risk preferences exist in Chinese direct investments in ASEAN countries? A case study of Chinese-funded enterprises in Laos

Abstract

Purpose Institutional factors play an important and complex role in Chinese outward foreign direct investment (OFDI) location choices that do not seem to be influenced by a host country’s high political risks. Moreover, the location choice for OFDI is key to corporate strategic decision-making on internationalization. Therefore, this study aims to examine the direct investments of Chinese multinational enterprises (MNEs) in Laos. Design/methodology/approach Combining the purposive sampling strategy and snowball sampling method, the authors interviewed nine market- and resource-seeking Chinese enterprises in Laos. Drawing from the mainstream eclectic paradigm and the theory of new institutional economics, the authors analyzed two key variables – enterprise investment motivation and enterprise heterogeneity. Findings Chinese MNEs are not insensitive to the regressive institutional quality of host countries; the relationship effect and institutional distance are the location decision pathways along with which institutional factors influence Chinese multinationals’ investments in Laos; political stability is necessary for Chinese-funded enterprises to invest in Laos and the degree of corruption is an overestimated institutional preference factor. Originality/value The relationship effect is introduced into the analysis framework as an intermediate variable that influences the decision of MNEs to invest in countries with underdeveloped institutions. It verifies the significant roles of bilateral political relations and network relations in the OFDI location decisions of state-owned and private enterprises, respectively.

An Empirical Study on the Impact of Chinese OFDI on the Global Value Chain Positions of Countries Along the Belt and Road and Threshold Effects

“…Wang et al, 2021). Additionally, Chinese enterprises are more willing to invest in countries whose institutional quality level is closer to Chinas’ to better adapt to investment environment (S. Chen et al, 2021; De Beule & Zhang, 2022).…”

“…Wang et al, 2021). Additionally, Chinese enterprises are more willing to invest in countries whose institutional quality level is closer to Chinas' to better adapt to investment environment (S. Chen et al, 2021;De Beule & Zhang, 2022). Moreover, Zhao (2022) revealed that institutional quality improvement may play a significant role in hindering Chinese OFDI spillover effect, and Chinese OFDI spillover effect is more obvious in B&R countries with weak institutional quality (Such as Southeast Asia and West Asia regions).…”