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

Siyue Chen (Tourism College of Hainan University, Haikou, China and Guangzhou Institute of Geography, Guangzhou, China)
Gengzhi Huang (Department of Urban and Regional Planning, Sun Yat-Sen University, Guangzhou, China and Southern Marine Science and Engineering Guangdong Laboratory, Zhuhai, China)
Hongou Zhang (Guangzhou Institute of Geography, Guangzhou, China)
Yuyao Ye (Guangzhou Institute of Geography, Guangzhou, China)
Qitao Wu (Guangzhou Institute of Geography, Guangzhou, China)

Journal of Chinese Economic and Foreign Trade Studies

ISSN: 1754-4408

Article publication date: 22 July 2021

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.

Keywords

Acknowledgements

This work was supported by three National Natural Science Foundation of China grants (No. 41901159, No. 41771137, and No. 41671128) as well as grants from GDAS’ Project of Science and Technology Development and Public (No. 2019GDASYL-0103005 and No. 2018GDASCX-0101). The recipient of No. 41901159 and No. 2019GDASYL-0103005 was Dr Siyue Chen, who conducted the analysis, prepared the original draft, and wrote the manuscript. The recipient of No. 41771137 was Dr Gengzhi Huang, who conceptualized the study and designed the research method. The recipient of No. 41671128 was Prof. Hongou Zhang, who participated in data collection. The funding bodies had no role to play in the study design; data collection, analysis and interpretation; writing of the manuscript or decision to publish this manuscript.

Citation

Chen, S., Huang, G., Zhang, H., Ye, Y. and Wu, Q. (2021), "Do institutional risk preferences exist in Chinese direct investments in ASEAN countries? A case study of Chinese-funded enterprises in Laos", Journal of Chinese Economic and Foreign Trade Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JCEFTS-09-2020-0060

Publisher

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Emerald Publishing Limited

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