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Outward direct investment by Chinese state-owned enterprises: Can host country policy act as a country-specific advantage?

Ana Teresa Tavares Lehmann (CEF.UP, FEP, Faculdade de Economia, University of Porto Rua Dr Roberto Frias Porto, Portugal)
Frederick Lehmann (Porto Business School, University of Porto, Portugal Lehmann & Co, Porto Portugal)

Competitiveness Review

ISSN: 1059-5422

Article publication date: 15 May 2017




The paper aims to investigate outward foreign direct investment (OFDI) by Chinese state-owned enterprises (SOEs), aiming to unveil whether the Chinese OFDI policy acted as a country-specific advantage (CSA) that has been turned by Chinese firms, particularly SOEs, into a firm-specific advantage (FSA).


Using a data set spanning 18 years (1996-2013) on international mergers and acquisitions (IM&As) by Chinese companies (SOEs and private-owned enterprises – POEs) and drawing on extant literature, the paper systematically compares the behavior of Chinese SOEs and POEs, aiming to identify differences in their behavioral patterns that indicate that SOEs have benefitted more from policy-induced advantages than their private counterparts.


Among other aspects, significant differences were found regarding the behavior of SOEs vis-à-vis POEs that seem to show that SOEs had greater support from public entities, leading them to close larger deals and purchase more companies/stakes in cash; acquire firms with greater debt (implying higher interest payments); and purchase smaller stakes than POEs (indicating that there are other objectives than control). This lends support to the assumption that Chinese SOEs are “sitting on piles of cash”, and that the availability of capital acted as a CSA that has been transformed into an FSA by the companies involved, notably by SOEs.

Research limitations/implications

The comprehensive and large-scale data set used includes wholly owned SOEs, leaving out of this research partially owned SOEs. The findings of this paper have implications for the discussion on competitive neutrality and for the academic, managerial and public policy debate.


To the best of the authors’ knowledge, this is the only study, to date, that shows systematic differences in financing patterns of OFDI (notably via IM&As) by Chinese SOEs and POEs, among other behavioral characteristics of both types of companies when conducting FDI abroad, linking that to CSAs and FSAs induced by CSAs.



The authors gratefully acknowledge the possibility of using in the context of this research a data set prepared for an OECD project titled “A Comparative Analysis of the Financing of International Investments by Privately Owned and State Owned Firms”. The authors would like to emphasize the leadership, support and commitment of Dr Michael Gestrin (Senior Economist, OECD Directorate for Financial Affairs) throughout the aforementioned project, and would also like to thank Dr Karl Sauvant (Columbia University) for his valuable comments. Ana Teresa Lehmann would like to acknowledge that this research was financed by the European Regional Development Fund through COMPETE 2020 - Programa Operacional Competitividade e Internacionalização (POCI) and by Portuguese Public Funds through FCT (Fundação para a Ciência e Tecnologia) in the framework of the project POCI-01-0145-FEDER - 006890.


Tavares Lehmann, A.T. and Lehmann, F. (2017), "Outward direct investment by Chinese state-owned enterprises: Can host country policy act as a country-specific advantage?", Competitiveness Review, Vol. 27 No. 3, pp. 231-252.



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