EU-China : the determinants of location choice of Chinese outward foreign direct investment in Europe

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The determinants of location choice of Chinese outward foreign

direct investment in Europe

University of Amsterdam

Faculty Economics and business

MSc Business Administration---International Management First supervisor: Dr. Vittoria G. Scalera

Name: Jiaying Li

Student number: 11186518 Date: 26-01-2017

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Statement of originality

This document is written by Jiaying Li who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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Abstract

In the “World Investment Report” (UNCTAD), foreign direct investment (FDI) is defined as: an investment in the form of a controlling ownership in a business in one country by an entity based in another country. In recent years, as the most important model of internationalization strategy for some Chinese enterprises, FDI has a rapid growth trend. In 2012, China has become the world's third largest exporter of FDI, and ranked first in the emerging countries. At the end of 2013, Chinese FDI in the EU has more than 53.1 billion US dollars. Extensive research shows that many Chinese firms invest in Europe are seeking for market and strategic assets. But the institutional factors are also the critical factors. However, does these motivations have the same effect on Chinese FDI location choices in all the EU countries? Due to the different economic development level, there are also different characteristics between countries, especial economy. Thus, Chinese firms always choose the different investment models in different countries. Therefore, I divided all the EU countries into two economic groups: high-income countries and middle-income countries to study location choices of Chinese FDI. And I presented that the factors derived from Dunning’s eclectic paradigm and the instituitional factors are the determinants of Chinses FDI location choices in the EU countries. Linear regression is used to test the hypotheses. The findings suggest that Chinese FDI is attracted to market size and strategic assets in all the EU countries. And the influence of institutional factors is more important in high-income countries than in middle-income countries. The last but not the least finding is that natural resources are not the motivation of Chinese FDI in middle-income countries while natural resources is a deterrent for Chinese FDI in high-income countries among the EU countries.

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With the impetus of economic globalization in the twenty-first century, middle-income economies and emerging economies have the rapid growth, and they are more involved in the global capital flows (Hanson G H.2012). Developing countries gradually become the leaders in the foreign investment, in other words, they are not passively accepted the investment from the high-income economies, but proactively invest in the foreign countries, including the developed economies (Hanson G H.2012). By the end of 2013, 7 of 20 top sources of the foreign investment countries are developing countries (UNCTAD, 2014).

In 2013, Chinese total non-financial overseas direct investment is 543.4 billion US dollars, it’s 479 times that of 1990, meanwhile, China has become third foreign investment countries, after the United States and Japan, and Chinese FDI (non-financial) in Asia is 447.41 billion US dollars in 2013, account for two-third of the total stock of Chinese foreign investment. But for Europe, Chinese foreign investment is 53.1 billion dollars in 2013, only account for 8.1% of the total stock of foreign investment (China Statistics Press, 2013). Thus, summarized from the above data, Chinese direct investment stock in the EU just account for the low proportion of the total Chinese foreign investment when compared with other regions, far behind the development of China-EU bilateral goods trade, and either not consistent with Chinese rapid development of foreign investment.

Since the financial crisis and the debt crisis, the European economy took a downturn long time. Apart from Germany and some Eastern European countries, most European countries have a very slow pace of economic recovery due to the high level of sovereign debt, high unemployment rates and other factors (Karanikolos M, Mladovsky P, Cylus J, et al. 2013). In 2014, most European countries are still in recession, while the contraction rate of overall economic activity is about 0.5%, and at the same time, because of the economic downturn, the European asset prices also fall (IMF, 2013). In addition, from 2004 to 2007, the EU enlargement has attracted Chinese firms to these lower-cost locations and allowed Chineese firms to get an easy

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access to the rest of the EU (Filippov and Saebi 2008). Besides, a part of Chinese direct investments are flowing into tax havens all over the world (i.e., the Cayman Islands, Hong Kong and the British Virgin Islands). This particular aspect is expected to be of great interest among Chinese enterprises (Morck et al., 2008; Buckley et al., 2007). But now in Europe, Chinese enterprises can also achieve this purpose with bigger markets and a better investment environment. For example, The Netherlands is considered to have the most favorable fiscal environments for foreign direct investment in Europe (NFIA, 2012). This is because the disbursement of corporate income tax in the Netherlands, which is only 20 percent when the profis below €200,000.00, and 25 percent when taxable profits exceeding €200,000.00. Other favorable aspects of the Dutch fiscal environment are tax reductions on R&D expenditures, diverse globally double taxation treaties and favorable debt and loss structuring (NFIA, 2012). These are pull factors for Chinese enterprises to invest in the EU. Meanwhile, there are some push factors. Firstly, government policies are a part of important driving force encourage Chinese MNEs to invest. The foreign exchange restrictions are eased by the government (Ohashi H. 2015). The second factor is the overcapacity of Chinese domestic market. Cheng and Stough (2007) considered the main motivations for market-seeking FDI by Chinese MNEs are overcapacity and falling prices in the EU. These factors provide a good opportunity for Chinese MNEs to invest in Europe.

However, Chinese investment in Europe is also facing many challenges. From the viewpoint of the current regional distribution of Chinese foreign investment, African countries which have rich natural resources and Asian countries which have more convenient geographical location are the more popular destinations of Chinese FDI, while the proportion of Chinaese foreign investment in Europe and other developed countries is small and less experienced (Li J, Newenham, Kahindi A, Shapiro D M, et al. 2013; Ramasamy B, Yeung M, Laforet S. 2012; Kolstad, Ivar, and Arne Wiig, 2012).

In sum, under the current circumstances that China’s direct investment in Europe increased in recent years, the main research question that this research will address is:

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Why Chinese Enterprises choose some European Union countries to make direct investments?

Although people, goods, capital and services could circulate freely in the EU, and the visitor would be able to travel unimpeded across some national borders, due to the different economic development level, there are also different characteristics between countries, especial economy (Dinan D. 1999). Thus, this paper will divide European Union countries into two groups (middle-income countries and high-income countries). According to The world bank, calculated using the World Bank Atlas method, if a gross national income per capita between $4,036 and $12,475, this country is middle-income country while high-income economies are defined as those with a gross national income per capita, of $12,476 or more in 2015. Therefore, middle-income countries are Bulgaria, Croatia, Hungary, Poland, Romania, Latvia, Lithuania, and the rest 20 countries are high-income countries (The World Bank, 2015).

Hence, the main innovations of this paper are as follows: On the basis of related theories and predecessors' research, this paper focuses on the different Chinese FDI location choices among the EU countries with different income levels, not just study the EU as a whole. In addition, not only the traditional economic factors derived from the eclectic paradigm which influencing Chinese FDI location choices are conidered in my paper, but also the institutional factors are considered to study its impact on Chinese FDI location choices in EU.

And the structure of this paper is as below.

Section 1 is the introduction of my research background, research question and main innovations. Section 2 is the literature review. In this paper, according to the eclectic paradigm and FDI related research, we find that the factors influencing the location choices of Chinese FDI in the EU are approximately consistent with Dunning's FDI theory, which is market-seeking, resource-seeking and strategic assets-seeking. Meanwhile, institutional factors also can not be ignored. Section 3 is hypotheses development. Depending on literature review, I state four hypotheses which are related to the traditional theory eclectic paradigm and institutional factors.

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Section 4 is data and methodology. The data set used for the empirical analysis consists of a panel of overall 27 European Union countries for the period 2004-2014, and the linear regression is used to test hypotheses. The results of the empirical analysis are presented in section 5. The last section is discussions and conclusions of this paper.

2. Literature Review

2.1 Mainstream FDI theory

The theoretical study of FDI began in the 1960s. Hymer (1960) proposed “the theory of monopoly advantage”, and Kindleberger (1979) made a further supplement on Hymer's monopoly of the advantages. On the whole, the monopoly advantage theory is based on the oligopoly market and the monopoly advantage, this is the earliest and systematic explanation of the motivation of foreign direct investment. The theory points out that in a perfectly competitive market, firms do not have a competitive advantage compared with the domestic or foreign firms, hence there is no need for direct foreign investment. In other words, the main reason for enterprises to invest in foreign markets is the imperfection of current market (Hymer, 1960). Generally, companies use their own channel advantages, economies of scale advantages, asset advantages or technological advantages, to make the foreign direct investment. In other words, the enterprises which want to make overseas investment must have its monopoly advantages. By studying the behavior of US multinationals in foreign direct investment, Hymer (1960) found that only if multinationals had the monopoly advantage that the enterprises of the host country did not have, they would invest directly and produce monopolistic products in the host country to dominate the market and gain access to high profits. In the early stage of the development of FDI, the form of foreign investment was still relatively simple, most overseas investment is just seeking for a big market. Monopoly advantage theory explained this phenomenon

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well, and it laid the foundation of FDI theories.

Raymond Vernon(1966) puts forward the "product life cycle theory" based on the theory of monopoly advantage, which explains the motivations and reasons of American enterprises' foreign investment location choice in the 1960s. Vernon (1966) believes that in order to maintain their products not to be imitated so as to gain leading edge technology in the market, companies will continue to develop new technologies to improve the product, while other competitors will also imitate the new technology products. So there are three stages of the product cycles, namely the stages of innovation, maturity and standardization. The theory divides foreign investment into three phases: in the first stage, enterprises expand to other countries market through their own monopoly advantages, and then obtain more profits by expanding to overseas markets in the second stage. In the third stage, the monopoly advantages of the enterprise will gradually disappear (Vernon, 1966). The investment motivation of the enterprise changes with the product life cycle from the expansion in the overseas markets at the first stage to the search for natural resources, production efficiency and even strategic assets at the second and third stage. In the each cycle, the production strategy, location choice strategies are different, and products would be produced in developed countries, more developed countries, developing countries in turn (Vernon, 1966). Before the production become standard and out of the market, enterprises will be set up production plants in the countries or regions which have the relatively low labor costs to reduce production costs in the form of foreign direct investment. Thus, compared with Hymer’s monopolistic advantage theory, product life cycle theory puts the location factors into the theory, and further reflects the different investment motivations. In the process of internationalization, the motivations of foreign direct investment will change with the development stage. The motivation of foreign investment is dynamic development (Vernon, 1966).

Buckley & Casson (1976) developed the "internalization theory", further expanded the theory of monopoly advantage. Internalization theory states that in addition to the monopoly advantage, promoting the profits of internalization is also one of the main factors for the enterprise to determine whether make the overseas

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investment or not. If the internalization cost of the enterprise is lower than other overseas entry costs (such as export, localization, etc.), the enterprise will choose the foreign direct investment in the incomplete market to reduce transaction costs, and increase corporate profits through the internalization of the market (Buckley & Casson, 1976). The theory presents that the multinational companies of developed countries should speed up to construct the enterprise network with the parent company as the core, make product transactions internalization and then use the internalization in the company network system. Compared with the previous theories, the internalization theory tries to explain the reason and way of the overseas investment from the enterprise's angle in the micro-level. Meanwhile, the multinational enterprises from the developed countries not only seek the market but also seek the resources and efficiency (Buckley & Casson, 1976). However, the "internalization theory" can not explain the necessity of FDI and the location factors of international production.

Kiyoshi Kojima (1978) proposed the "theory of marginal industry expansion" based on the principle of comparative advantage, which is also called the theory of comparative advantage. The theory states that the previous theory are all based on multinational corporations from the United States or Europe, and the international direct investment of Japanese multinational corporations will be different. Japanese FDI is dominated by small or medium-sized multinational firms, mainly concentrated in the labor and resource-intensive areas (Kojima, 1978). So Japanese foreign investment is mainly to seek efficiency and natural resources, and to enlarge the scale of foreign trade. Because the multinational corporations from Europe or the United States have the larger scale and higher-quality technology, the international direct investment is concentrated in the technology-intensive field. He abandoned the previous studies which only focus on the micro-model of enterprises, analyzed the foreign direct investment behavior according to the comparative advantages, the dynamic changes in the different countries at the macro level, proposed resource-orientation, market-orientation, production-orientation and international production & sales-orientation four types of foreign direct investment motivation

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(Kojima, 1978). At the same time, there is a certain technology spillover effect in foreign investment, which will help to optimize the structure of production factors in Japan and accelerate the technological progress of enterprises.

Then, Dunning (1977) proposed the " eclectic paradigm" by integrating the above several theories, and this theory is now seen as the most comprehensive theory of FDI. The core of the theory includes the ownership advantage (O), internalization advantage (I) and location advantage (L). Ownership advantage refers to the organization and management capabilities, financial financing and technology advantages, so that enterprises could have more advantages when investing in the host country, so as to reduce additional costs and overcome institutional risks when produce in a foreign country. Location advantage refers to the environmental conditions of the host country which the corporation can make use of. Internalization advantage refers to the advantage when the enterprise transfer the assets to the foreign subsidiary owned by the enterprise rather than transfer to other external company (Dunning, 1977). These three advantages determine the motivations, investment direction and methods of the enterprises' foreign direct investment. based on the OLI eclectic paradigm, the main motivations of enterprises’ foreign investment are divided into four types: market-seeking, resource-seeking, efficiency-seeking and strategic assets-seeking. It’s a more comprehensive and mature investment motivation theory.

2.2 The theoretical foundation of developing countries’ FDI

With the rapid development of FDI in developing countries, a lot of theories which depend on developing countries perspective gradually appear, such as the small-scale technology theory, technological innovation, industrial upgrading theory and the investment development path theory which developed from OLI theory (Wells L T, 1983; Tolentino P , 2003; Dunning J H, 1977, 1982). More and more scholars pay attention to the motivation of emerging economies’ FDI.

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mentioned before. Wells(1983) studied investment motivation of developing countries that the main purpose of overseas investment of developing countries is that they want to be close to the host market in order to reduce investment costs, break trade barriers and to seek lower resources prices (such as raw materials and labor) as much as possible. Teece (1986) made the supplement on this basis that in order to obtain the specific assets or resources to improve their international competitiveness, developing countries’ MNEs always make the foreign investment. Moon and Roehl (2001) argued that compared with the developed economies, emerging economies’ FDI was mainly due to the presence of a greater degree of imbalance in resources and production factors. By analyzing the characteristics of Chinese FDI and motivation as well as government policies and measures, Cai (1999) summarized Chinese overseas investments’ motivations. He concluded it into four motivations, resource-seeking, market-seeking, technology-seeking and financial capital-seeking. On this basis, Deng(2004) supplemented that strategic asset-seeking and diversification-seeking also promote Chinese MNEs to make the overseas investment.

From the perspective of the home countries, Louis J. Wells (1991) proposed a small-scale technical theory in "The Internationalization of Firms From Developing Countries", wells (1991) discuss it in detail. He argued that the small-scale production technologies of multinationals in emerging economies make them more competitive in outward investment. Small-scale technology with a flexible, low-cost features, could meet the dynamic needs of small oversea markets. Therefore, some multinationals in emerging economies have certain advantages in the foreign direct investment. On the basis of studying the investment motivation of Indian multinational corporations, Lall (1983) put forward the theory of technology localization, which is mainly used to explain the behavior of developing countries’ FDI. He believed that emerging economies are also in the process of launching their own innovative activities when in the use of foreign technology, which is the process of technology recycling process. That is to say that these innovative activities could endow enterprises the competitive advantage, and help enterprises to promote foreign direct investment. In the new situation that the emerging economies make the foreign

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direct investment to the developed countries, the theory of technological innovation and industrial upgrading were proposed by Cantwell and Tolentino (1990). They believed that foreign direct investment with the main motivation of seeking resources of developing countries will change with the upgrading of technology and management skills, and will gradually transit to investment with the main motivation of seeking foreign technology, so as to upgrade the industry and promote FDI, and accelerate the growth of investment.

From the perspective of the host countries, wells(1991) stated that emerging countries make the foreign direct investment for seeking overseas cheap resources, or reducing transportation costs by constructing factories overseas. Lecraw(1993) argued that Indonesia invests in developed regions where the level of development is higher than itself, primarily to acquire strategic assets such as technology. Meanwhile, when Indonesia invest in countries with similar level of development, mainly in order to expand overseas markets. P. Deng(2004) stated that the main reason for the foreign direct investment of developing countries is in order to obtain the technical and management capacity of developed countries.

2.3 Market-seeking FDI

Chakrabarti (2001) found that market-seeking motivations seem to be the most important motivation. According to the results of qualitative research, Zhipeng Huang (2005) thought that the Chinese MNEs invest directly in EU countries in order to open the EU market and obtain advanced technology. By study FDI experience of Asian countries (such as Japan, Korea, Singapore, etc.), this paper states that Chinese MNEs need to strengthen their own brand operations, enterprise management and enhance talent pool, choose a suitable pattern of investment, in order to better invest in Europe. According to the western traditional FDI theory, Havrylchyk and Poncet (2007) analyzed motivations of Chinese overseas investment. The paper states that the limited domestic market demand, raw material prices rising and excellent R&D capability of foreign companies will cause enormous competitive pressures for

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Chinese MNEs which have the relatively weak brand. Therefore the purpose of Chinese FDI is to explore the market and seek for technical and natural resources. For example, A Chinese investment in Romania is the “European China Industrial Park” built by FengJia International. FengJia International is a Chinese-funded multinational investment management company, has 10 years of experience in overseas investment. Europe China Industrial Park is Romania's largest industrial investment and comprehensive support services companies. The industrial park has five factories involved in garment production, wood processing, cigarettes, electronic products, household appliances, energy-saving lamps production and fresh fruit & vegetable imports, production, distribution and foreign trade in one. China Industrial Park also has some Chinese small and medium enterprises’ investment, including bicycle production, recycling, building materials and industrial printing (Yulia et al, 2014). Nicholas (2009) found that the number of Chinese greenfield investment in Europe is far more than mergers and acquisitions (M&A), the scale of greenfield investment is often small, and its’ aim was often to open the market or make its products localization. Through mergers and acquisitions, Chinese MNEs is in order to open up their sales channels and consumer networks in Europe. Through regression analysis of 103 Countries’ panel data from 2003 to 2006, Kolstad and Wiig (2011) found that Chinese MNEs prefer to invest in the market with a larger size, rich natural resources and weak institution. Chinese overall investment motivation can be summarized to market-seeking and resource-seeking. By study FDI and export, energy demand, GDP, manufacturing RCA Index, Jingbo Huang and Anmin Zhang (2009) found that those variants have a significant correlation with each other. Meanwhile, export and energy demand have a big influence on OFDI, they also think the motivations of Chinese FDI are market-seeking and resource-seeking. Hua Zhu (2014) constructed a theoretical framework which is suitable for the motivation of developing economies MNEs’ FDI, then divided the motivation of FDI into three types: resource augmentation, resource supplement and resource exploitation. This paper uses panel data model to empirically study Chinese overseas investment in 53 economies from 1998 to 2008. The results show that the strategic motivation of Chinese FDI is market development and

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resources supplement. Zaiqi Liu and Yang Wang (2014) used EU countries’ panel data to study investment motivations, thought that Chinese MNEs invest in the EU in order to open European markets and obtain core technology. However, the study lack the theoretical basis of investment motivation research, and the model does not consider the impact of bilateral investment protection agreements, thus regression result may be biased.

2.4 Strategic asset-seeking FDI

Strategic assets refers to assets that can bring long-term competitive advantage to the enterprise. It is a kind of assets which are difficult to be imitated or difficult to be substituted, and it could meet the market demand (Amit & Schoemaker, 1993). In most instances, latercomers always seek for the strategic asset by acquiring innovative firms for needed resources when latecomers and firms with few technological capabilities trying to alleviate some latecomer or newcomer deficiencies (Luo & Tung, 2007). As the representative, Sweden has the developed high-end manufacturing and modern service industry, is the world's most innovative areas. Stockholm's Kista Technology Park is known as the world's most influential high-tech center after Silicon Valley. World-class high-tech enterprises in the park have set up R&D center or production base. It’s an impressive attraction for Chinese FDI (Ling Yao, 2011). As for Germany and France, they have developed manufacturing and service industries, small and medium enterprises in these two countries are more active. That is to say they have the technology, brand, industrial design capabilities and market which could fulfill Chinese enterprises’ needs. Therefore, Chinese enterprises can consider investing in the local factories through the acquisition and get the access to core technologies and products (Ling Yao, 2011). Furthermore, Luo & Tung (2007) stated that acquiring strategic assets through FDI can provide reputation and prestige for firms, obtain or control resources, and gain access to local markets. Meanwhile, the most effective channel for firms to access and source strategic assets are FDI and M&A (Chung & Alcacer, 2002). Strategic asset-seeking could also reduce the burden

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for MNEs of emerging market to invest heavily in R&D thus offset their technological weaknesses (Luo & Tung, 2007). SomeAasian firms are most interested in seeking superior resources and skills in advanced host countries (Makino et al., 2002).

2.5 Resource-seeking FDI

There is a positive association between the natural resources endowment of countries and OFDI because the internalization theory asserts the importance of the exploitation of natural resources (Buckley & Casson, 1976). Because China has a low availability of natural resources per capita, resource-seeking is regarded as the key motivation of Chinese outward FDI (Deng, 2004). At the end of 2010, the investment in mining and agriculture accounted for 12.6% of China's total investment to the EU. For example, Romania has relatively rich natural resources, with the appropriate conditions to become a regional energy base. And it has large tracts of fine agricultural land, can provide quality food which can support population four times that of Romania (Salmih et al. 2016). Buckley et al (2007) infered that from the significant role played by host country natural resource endowments, the institutional environment has strongly shaped Chinese FDI, leading to the significant natural resources-seeking FDI. Through an empirical analysis of economic and investment data, Licheng Qiu and Fengli Wang (2008) found that overseas foreign investment positively correlates with domestic manufacturing wages and resource consumption, and have alternative relation with the export. This shows that motivation of Chinese FDI is resource-seeking.

2.6 Institutional factor of FDI

Economic efficiency is regarded as the ultimate determinant of location choice in OLI eclectic paradigm. However, economic efficiency can only explain part of the influential factors of FDI location choice, as institutional legitimacy are required by investing firms in order to survive in a challenging foreign enviornment (Kostova &

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Zaheer, 1999). Organizations are embedded in and must adapt to their institutional enviornment to attain legitimacy (Zukin & DiMaggio, 1990). This is the reason why we should integrate institutional factor into FDI theory (Sethi, Guisinger, Ford, & Phelan, 2002). Dunning (2006) pointed that it’s important to consider institutional factors in the eclectic paradigm after noticing a lack of institutional content. Peng et al. (2008) pointed that integrating an institutional factor into FDI theory is even more important for the emerging markets.

In summary, a lot of studies about Chinese FDI in Europe focus on the whole Europe, but due to the different characteristics of every European country, overall economic conditions in the EU are so complex. Thus, if we simply consider the overall conditions in the EU to evaluate the motivation of Chinese enterprises’ investment, the conclusion would be puzzling and hard to defined. However, if we study each European countries separately, the conclusion would be often very fragmented and not easy to summarized. Therefore, my paper attempts to divide European Union countries into some groups by some similar characteristics, and to study different determinants in different locations.

3. Hypotheses development

3.1 Market-seeking FDI

The market size of the host country always has a positive relationship with FDI inflows (Bevan & Estrin, 2004). In the recent case of Chinese FDI, some studies showed that the biggest motivation for Chinese enterprises is always market seeking (Buckley et al., 2007, 2008; Deng, 2004). For example, investment in developed markets, including Western Europe, is aimed at acquiring new market and new technology information sources, and increasing the international competitiveness of Chinese enterprises. Many overseas Chinese scholars believe that the investment of Chinese enterprises in Europe is the desire for overseas markets. Under the premise

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that Chinese domestic market has become saturated (such as clothing, bicycles, household appliances and other commodities), invest in high-income countries is an efficient method to seeking new markets overseas and protecting Chinese market share in Western Europe from anti-dumping litigation (Zhan Xiaoning, 1995). Given the conclusion of previous literature, I want to test the attraction of market by hypothesizing that:

H1. The choice of Chinese firm’s FDI location is positively associated with high-income countries and middle-income countries’ market size.

3.2 Strategic assets-seeking FDI

Over the years, Chinese technological progress mainly relies on foreign technology diffusion, learning and imitation. Therefore, through direct investment activities in Western Europe, especially cooperate with foreign investment, compete with host countries’ investment and learn foreign technology, Chinese enterprises could obtain modernization of the various high-technology. We see Haier, Kang Jia, Galanz and other Chinese firms invest in Europe and establish the R&D center, learn advanced technology in Europe and America, to achieve their own technological innovation and products in order to closer to the consumer and become market leaders (Bo xu. 2001). The direct investment in the Western European core markets and establishments of R&D center, such as the Bavarian Silicon Valley in Germany, Silicon Valley in the United Kingdom, and France Sophia Antipolis Science City, will enable China to obtain a large number of electronic communications information and high-tech products in the area of biology with Chinese own intellectual property rights, in order to achieve the development and production of the internationalization of Chinese enterprises and enhance Chinese international competitiveness (Bo xu. 2001). And it is expected that in order to help them to strengthen their competitiveness, Chinese MNEs would direct invest in strategic asset-seeking through M&A, in particular in the industrialized countries (Dunning et al., 1998; Dunning, 2006). Thus, I hypothesize that:

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H2. The choice of Chinese firm’s FDI location is positively associated with high-income countries and middle-income countries’ strategic assets.

3.3 Resource-seeking FDI

In general, although the EU is a net importer of industrial minerals, its own industrial mineral production still accounts for 20% of global production. At present, the EU has about 650 mines and quarries and more than 600 factories are doing mining and processing of industrial minerals, the annual output value is about 13 billion (IMA-EUREPO, 2009).

However, Chinese resources investment is mainly concentrated in Africa. In 2013, Chinese investment in Africa is about 3.3 billion dollars, about 25% (800 million US dollars) is a resources investment. In contrast, while resource investment in the European Union has shrunk in recent years with only 200 million dollars in 2013, but the stock is as high as 4 billion dollars (Statistical Communique on China's Foreign Investment, 2013), therefore the investment in the EU's resources should not be overlooked. For example, in 2012, State Grid Corporation of China acquired Portugal National Energy Network 25% of the shares for the price of 387 million euros. In 2006, Geely Automobile acquired British Manganese Bronze Holdings PLC for the price of 600 million yuan. At the same time, because some multinational resources companies are headquartered in the EU countries, so some Chinese resource investment in the other regions outside the EU often be collected to the investment in the EU. In 2009, Sinopec Group acquired Emmere Emerald Energy PLC (Emerald Energy PLC) 100% share for the price of 532 million pounds.

However, with the rapid growth in investment in business services and financial sectors in recent years, The proportion of Chinese mining, agriculture and hydropower investment in coal industry has dropped to 5%, accounting for only 1.2% of the total stock of Chinese FDI in the same industry (European Chamber of Commerce, 2013). Although the EU has a few natural resources to export, if we observe the balance between exports and imports, we will find a negative value in

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most EU countries, indicating that in the EU countries, natural resources is not a significant factor to attract direct investment, but more is that the EU countries invest in other countries to obtain natural resources. Although there are some countries and regions have rich fuels and mineral resources in southern and eastern Europe attracting Chinese companies to seeking natural resources, the costs of production in the EU are relatively higher especially in high-income countries than those in developing countries, thus Chinese firms prefer to seek natural resources in Africa or Asia. And because I just consider the natural resources the EU countries actually own, but do not include countries’ investment in other countries' natural resources, therefore, I hypothesize that:

H3a. The choice of Chinese firm’s FDI location has a positive relationship with middle-income countries’ natural resources.

H3b. The choice of Chinese firm’s FDI location has a negative relationship with high-income countries’ natural resources.

3.4 Institution environment of FDI

Compare with the companies of developed countries, Chinese companies have the experience to “navigate complex customer relationships and institutions in a relatively difficult business environment” (Morck Et al., 2008). Unlike most multinationals, China is less concerned with the political institutions (voice and accountability) of the countries, and tend to avoid strict legal systems. If the risk of corruption is small and the financial cost is high, perhaps moral costs are low in countries where such activities are more frequent. Or we can say that when the host country's control of corruption is similar to that of China, Chinese companies know how to operate better in such a bad environment, thus have more opportunities than competitors (Yongqin wang et al., 2014). It converges to the possible hypothesis that Chinese FDI would be attracted to the country with poor institutions. This may indicate that compare with other developed economies, Chinese companies operate more efficiently in the countries with an imperfect legal system (Yongqin wang et al.,

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2014). But when this gap exceeds a certain range, China will increase the possibility of its investment instead, such as the United States, Germany. These countries have more mature market and the government's administrative efficiency is also high in these countries. Thus, my four hypotheses are:

H4a. The choice of Chinese firm’s FDI location is negatively associated with the institution in the middle-income countries.

H4b. The choice of Chinese firm’s FDI location is positively associated with the institution in the high-income countries.

4. Data and method

4.1 Dependent variable

The dependent variable is the FDI stock from Chinese firms in each EU countries. Due to the recession caused by 2008 global financial crisis, most Chinese enterprises reduced investments in Europe and the USA, even withdrawn part of the investment in several countries (such as Bulgaria, Malta), led to investment flows of several EU countries is negative in some particular years, and this would cause problems when processing data. Therefore, this paper uses FDI stock in EU countries as a dependent variable. Data for this variable were sourced from MOFCOM.

4.2 Independent variables

(1) Market size of the host country. The main motivation of foreign investment includes the development and expansion of host country's market, namely market-seeking. Thus the market size of the host country will significantly affect investment in other countries. Therefore, this paper will use real GDP of the EU countries as a proxy variable of market size. Real GDP not only reflects the economic scale of one country, but also reflects the size of one country’s population. Data for

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this variable were obtained from Eurostat database.

(2) Strategic assets of the host country. As the world's largest economy, a majority of European Union’s members are high-income economies, therefore, those countries have high-end core technology and management experience that Chinese multinational corporations are lack of. Many enterprises invest in those countries for strategic assets-seeking. Thus this paper selects the number of patent applications of EU countries to measure this factor. Data for this variable were taken from WIPO.

(3) Resource endowments of the host country. A majority of Chinese investment is in order to seek natural resources such as oil or other natural resources. This paper will use the proportion of the ores and metals exports in total exports to measure the host country’s resource endowments. This variable is related to resource-seeking. Data for this variable were obtained from Eurostat database.

(4) Institutions. The Rule of Law index measures “the degree of that agents bey the rules of the society, especially the contract execution, property rights, the quality of the police and the courts.” (Ivar Kolstad, Arne Wiig, 2009). This index broadly inflects the role of institutions in attracting Chinese FDI. For avoiding rent-seeking problems in resource rich countries, rule of law institutions have a very important role (Kolstad, 2009; Mehlum et al., 2006). So I want to use the rule of law index from the World Bank Institute (Kaufmann D. et al., 2008) to measure institutions. Data for this variable were sourced from the quality of government institute.

4.3 Control variables

(1) Inflation. Inflation was included to reveal the impact of the main variables. We expect that inflation in the host country has a negative relationship with the location choice of Chinese FDI (Kang & Jiang,2012). This data collects from “world development indicators (WDI)”.

(2) Geographical Distance. In many earlier studies of FDI, geographical Distance has been widely considered as a necessary control variable (Basile et al., 2008). In this article, because the distance between each European countries and

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China are almost same, so I consider it as a control variable. The measurement of distance is kilometers between Beijing and the capital of host country. Data for this variable were obtained from http://www. distancefromto.net/.

Table 1: Data and data sources

4.4 Methodology

Variables Data Sources

Dependent variables

Investment stock Investment stock data MOFCOM

Independent variables

Market size Real GDP Eurostat database

Strategic asset The number of patent applications WIPO

Resource endowments The proportion of minerals and metals Eurostat database exports in total exports

Institution The rule of law the quality of government institute

Control variables

Inflation Host country’s rate of inflation WDI

Distance Distance between Beijing and the capital of host country http://www. distancefromto.net/

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 

 _it _it

it GDP

FDI α β1 β2



thenumberof patentapplications



it



the proportionof ores and metalsexportsintotalexports



_it

3

β

Back to my main research question: “Why Chinese enterprises choose some European countries to make direct investments?”, I want to use a quantitative method to answer it.

After the variables used in previous content, I want to formulate the linear regression model as follows:

+

+β4



theruleof law



it+εit

where

i = 1, . . ., 27 represents host country i

t = 2004, . . ., 2014 represents the time period.

The data set used for the empirical analysis consists of a panel of overall 27 European Union countries and for the period 2004-2014. It’s worth noting that inspired by Yuanfei Kang and Fuming Jiang (2012) who divided East and Southeast Asian countries into low-income and high-income economies, I also want to divide the whole European countries into two groups: middle-income countries and high-income countries. Although most of the European countries are high-income countries, middle-income countries in the EU might have their unique characteristics to attract FDI. Thus, 27 European Union countries are divided into two groups: one is middle-income countries (Bulgaria, Croatia, Hungary, Poland and Romania, Latvia, Lithuania), the rest is high-income countries. The dependent variable is Chinese FDI stock. The independent variables are real GDP, the number of patent applications, the proportion of the minerals and metals exports in total exports and the rule of law. The control variables are distance and inflation. FDI stock is a more accurate variable of FDI location distribution when compare with FDI flow to these countries (Filippaios, Papanastassiou&pearce, 2003). Data were obtained from Official Chinese sources (MOFCOM). Real GDP represents the total gross domestic product of the host country. This is because GDP can represent a country's market size. The bigger the

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GDP, the greater the size of the market, and the greater the amount of investment. Used as a proxy variable, the number of patent applications could measure the technology development level and managerial knowledgement to accommodate strategic asset-seeking motivation of the companies. The data were obtained from Statistics on Patents, a database published by WIPO. Natural resource is measured as a proportion of ores and metals exports in total exports, the value range is 0-1. The rule of law broadly reflects the role of institutions in attracting Chinese FDI in the preceding theoretical arguments. The index is from -2.5 to 2.5,and the data were taken from Quality of government institute.

In my estimations, I want to use a linear regression analysis in SPSS to test the proposed hypotheses. A linear regression analysis is a scientific method when you study the relationship between one or more independent variables and their effect on one dependent variable. Then a structural break method was used to investigate heterogeneity within the data. All the EU countries are divided into two groups of middle-income countries (Bulgaria, Croatia, Hungary, Poland, Romania, Latvia, Lithuania)and high-income countries (Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain, Sweden). Middle-income countries are those with a gross national income per capita between $4,036 and $12,475 and high-income countries are defined as those with a gross national income per capita, of $12,476 or more in 2015. Independent samples T-test were also performed to statistically support the split of the full sample. The results from independent samples T-test are all significant for four cases. For three independent variables: the real GDP, the number of patent and rule of law, p<0.001, for the proportion of ores and metals exports in total exports, p<0.01. Thus, estimation of the split of the sample is statistically justified.

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5. Results

Table 2: Descriptive statistics: means, standard deviations and correlations

Correlations and Descriptive Statistics

Variables 1 2 3 4 5 6 7 1.FDI stock 1 2.Rule of law 0.378** 1 3.The number of patent applications 0.635** .315** 1 4.Real_DGP 0.713** .188** 0.831** 1 5.The proportion of

ores and metals exports in total exports -0.220** -.326** -0.135* -0.190** 1 6.Inflation -0.251** -.360** -0.173** -0.203** 0.125 1 7.Distance 0.352** 0.057 0.029 0.252** -0.183** -0.195** 1 Obs. 297 297 297 297 297 297 297 Mean 197236.662 1.091 14226.370 406316.721 0.041 2.602 7553.569 Std. Dev. 238497.688 0.620 33409.072 659530.279 0.036 2.274 785.529 Min 4061.360 -0.180 17.000 5206.700 0.000 -4.470 6329.300 Max 1002895.740 2.120 184523.000 3868291.200 0.190 15.430 9678.400

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Table 2 presents the descriptive statistics and correlation matrix for dependent and independent variables. Correlations between the dependent variables, the independent variables and the control variables show a slightly significant correlation. Meanwhile, the result indicates that the number of patent application and real GDP may exist multicollinearity, but in table 3, we can find that VIF of these two independent variables are below 10, therefore there are no serious multicollinearity between these two independent variables.

Table 3: Collinearity Statistics

Variables VIF

1.Real GDP 4.097

2.The number of patent applications 4.037 3.The proportion of ores and metals exports in total exports 1.097

4. Rule of law 1.349

Inflation 1.219

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5.1 Results of full sample

Table 4: Results of linear regression on analysis of all the EU countries

Group Name The EU countries

Model Number Baseline Model 1 Model 2 Model 3 Model 4 Full Control variables Inflation -0.190** -0.085** -0.084** -0.189** -0.068** -0.001** (5719.111) (4259.044) (4383.904) (5653.753) (5764.739) (4264.080) Distance 0.315*** 0.171*** 0.318*** 0.300** 0.320*** 0.210*** (16.577) (12.477) (12.506) (16.458) (15.593) (12.474) Independent variables 1.Real GDP 0.653*** 0.501*** (0.015) (0.027) 2.The number of patent applications 0.612*** (0.293) 0.143 (0.528) 3.The proportion of

ores and metals exports in total exports -0.149* (164371.587) 0.016 (119201.222) 4. Rule of law 0.335*** 0.230*** (20766.875) (16448.566) N. 297 297 297 297 297 297 R2 _0.159 _0.547 _0.522 _0,181 _0.257 _0.607 Adj.R P value of T Test 0.153 0.543 0.000 0.517 0.001 0.172 0.000 0.249 0.000 0.599 *p < 0.05. **p < 0.01. ***p < 0.001.

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From table 4, we could conclude that the dependent variable FDI stock has a significant relationship with each independent variable. However, for first three variables (1. Real GDP; 2. The number of patent applications; 3. Rule of law), dependent variable has a positive relationship with them, but for the last independent variable the proportion of ores and metals exports in total exports, FDI stock has a negative relationship with it.

Empirical results indicate that market size has a strong influence on the location choice of Chinese FDI. The regression coefficient of variable real GDP is 0.653***, a highly significant and positive effect of this variable confirms that FDI stock has a positive relationship with market size. Variable the number of patent application is also significant and positively associate with the dependent variable. The regression coefficient of variable the number of patent applications is 0.612***, confirming the fact that the more strategic assets, the more FDI stock. Variable the proportion of ores and metals exports in total exports is slight significant and negative associates with FDI stock. The regression coefficient of variable the proportion of ores and metals exports in total exports is -0.149*, indicating that natural resource is not the motivation for Chinese FDI location choice in general. Variable the rule of law is also significant and bears a positive sign as expected. The regression coefficient of variable rule of law is 0.335***, indicating that innovation is an important motivation for Chinese FDI invest in the EU.

5.2 Results of two economy groups

Empirical results of independent sample T-test justified the initial intent to divide the full sample into two economy groups. The results of the two economy groups were different with those generated from the full sample, suggesting that Chinese FDI followed different location patterns when investing in different groups.

For the middle-income economies (table 5), real GDP (0.923***) and the number of patent applications (0.888***) are positive and significant, rule of law

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(0.339*) is slight significant at a less significant level (p<0.01), but the proportion of ores and metals exports in total exports (-0.120) is not significant.

Table 5: Results of linear regression on analysis of middle-income countries

For the high-income economies (table 6), real GDP (0.646***), the number of patent applications (0.620***) and rule of law (0.283***) are positive and significant, while the proportion of ores and metals exports in total exports (-0.166*) is negative and slight significant.

Group Name Middle-income countries

Model Number Baseline Model 1 Model 2 Model 3 Model 4 Full Control variables Inflation -0.180 -0.010** -0.120** -0.242** -0.040 -0.122 (2102.153) (785.563) (942.593) (1794.162) (2074.548) (758.334) Distance 0.118 0.129*** 0.306*** 0.024*** 0.177*** 0.123*** (17.082) (6.275) (7.581) (14.705) (19.851) (7.425) Independent variables 1.Real GDP 0.923*** 0.848*** (0.022) (0.066) 2.The number of patent applications 0.888*** 0.087 (2.109) (5.085) 3.The proportion of ores and metals exports in total exports -0.120 (84757.949) 0.124* (40307.616) 4.Rule of law 0.339* 0.214** (20551.406) (7570.056) N. 77 77 77 77 77 77 R2 _0.050 _0.873 _0.357 _0.326 _0.816 _0.931 Adj. R2 _0.024 _0.868 _0.092 _0.299 _0.809 _0.922 *p < 0.05. **p < 0.01. ***p < 0.001.

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Table 6: Results of linear regression on analysis of high-income countries

Group Name High-income countries

Model Number Baseline Model 1 Model 2 Model 3 Model 4 Full Control variables Inflation -0.163* -0.075 -0.076*** -0.165* -0.108 0.002 (10611.624) (8040.581) (8214.225) (10558.242) (10409.411) (7680.683) Distance 0.254*** 0.146** 0.301 0.250*** 0.326*** 0.234*** (20.427) (15.548) (15.700) (20.334) (20.317) (15.798) Independent variables 1.Real GDP 0.646*** 0.706*** (0.017) (0.032) 2.The number of patent applications 0.620*** -0.058 (0.342) (0.626) 3.The proportion of ores and metals exports in total exports -0.166* (209665.446) 0.002 (152043.125) 4.Rule of law 0.283*** 0.296*** (34155.685) (27001.359) N. 220 220 220 220 220 220 R2 _0.097 _0.494 _0.472 _0.112 _0.169 _0.586 Adj. R2 _0.088 _0.487 _0.465 _0.095 _0.158 _0.569 *p < 0.05. **p < 0.01. ***p < 0.001.

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6. Discussions and Conclusions

6.1 The summary of thesis

The aim of my thesis is to study the determinants of Chinese FDI location choice in Europe. In recent years, as the most important model of internationalization strategy for a Chinese enterprise, FDI has a rapid growth trend. In 2012, China had become the third largest exporter of FDI in the world, and ranked first in the emerging countries. At the end of 2013, Chinese FDI in the EU has more than 53.1 billion US dollars. Although Chinese FDI has been greatly improved compared with the past, there is still a big gap when compared with the developed countries. In 2012, the EU is the Chinese largest trading partner, the largest source of imports and the fourth largest source of investment, thus the market between the EU and China has great potential. But in terms of bilateral trade, Chinese investment in the EU is very disproportionate. Under the European debt crisis, empirical research on Chinese FDI has important practical significance for the development of FDI between two countries. Therefore, my research question is: Why Chinese enterprises choose some European Union countries to make direct investments? And due to the different economic development level among EU countries, there are also different characteristics between countries, especial economy. Therefore, all the EU countries are separated into two groups of middle-income countries and high-income countries and a structural break method was used to investigate heterogeneity within the data. Then, depend on the eclectic paradigm and institutional factors, I presented four hypotheses. The first one is: the choice of Chinese firm’s FDI location is both positively associated with high-income countries and middle-income countries’ market size, linking to market-seeking. The second one is: the choice of Chinese firm’s FDI location is both positively associated with high-income countries and middle-income countries’ strategic assets, linking to strategic assets-seeking. The third

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one is: the choice of Chinese firm’s FDI location has a negative relationship with high-income countries’ natural resources and a positive relationship with middle-income countries’ natural source, linking to resource-seeking. The last one is related to instiutional factors: the choice of Chinese firm’s FDI location is negatively associated with the institution in the middle-income countries while the choice of Chinese firm’s FDI location is positively associated with the institution in the high-income countries. The dependent variable is Chinese FDI stock. The independent variables are real GDP, the number of patent applications, the proportion of the ores and metals exports in total exports and the rule of law. The control variables are distance and inflation. The data set used for the empirical analysis consists of a panel of overall 27 European Union countries and for the period 2004-2014. Linear regression was used to test the hypotheses. The results show that hypotheses 1 and 2 are both supported, the relationship between two groups are both positive and significant. Hypothesis 3a is rejected while hypothesis 3b is supported. For middle-income countries, natural resource is not significant while for high-income economies, natural resource is negative and slight significant. Hypothesis 4a is rejected because the result is positive and slight significant in middle-income countries while hypothesis 4b is supported.

6.2 Discussions

By testng three traditional economic variables and institutional variable, my study has sought to contribute to the study of the location choices of Chinese FDI. From empirical processes, we could illustrate several conclusions.

For all EU countries, the first conclusion is that countries which have large market size could attract more FDI stock. Chinese firms would like to invest in which countries have a big market size. The second conclusion is that when Chinese enterprises invest directly in Europe, the host country's strategic assets is indeed an attractive motivation. The third conclusion indicates that a more natural resource in a host European economy seems a deterrent for Chinese FDI. A possible explanation

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could be that EU economies have more strict requirements for exporting natural resources than countries with higher resource endowments (such as the Middle East and African developing countries). Moreover, while some rich fuels and mineral resources countries or regions in Southern and Eastern Europe are able to attract Chinese enterprises that need natural resources, the production cost in the EU is relatively higher than in developing countries. Meanwhile, developing countries often lack the necessary funds and skills to extract and export natural resources, and foreign direct investment could make up for this deficiency. For example, PetroChina acquired Italy's Eni Oil Group. PetroChina acquired a 28.57% stock of Eni East Africa, a wholly-owned subsidiary of the company, indirectly acquiring a 20% interest in the Mozambique project in East Africa. This result suggests that Chinese firms would prefer invest in the countries where exist a high-quality institution.

For middle-income countries in the EU, the results indicate that Chinese FDI always invests in middle-income countries for seeking market and strategic assets, while measuring the institution situation a few. And the higher quality of the institution, the more Chinese FDI. But the natural resource is not an attractive motivation for Chinese FDI.

For high-income countires in the EU, The empirical results indicate that Chinese FDI invests in high-income countires also seeking for big market size and strategic assets, while a good institution also attracts Chinese FDI. The fact Chinese FDI location choice has a positive relationship with middle-income countries’ natural source is rejected, as a negative impact of natural resource was found. And for high-income countries, a more natural resource in the high-income economies is also a deterrent for Chinese FDI as the same as the full sample.

In conclusion, there are some same points and difference points between middle-income and high-income economies. Hypotheses 1 and 2 are both supported, the results of two groups are both positive and significant, indicating that Chinese FDI is attracted to market size and strategic assets in all EU countries. Turning to institutional variables rule of law, high-income countries’ is more significant than middle-income countries’, indicating that when Chinese firms invest in EU countries,

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the influence of institutional variable is more important in high-income countries than in middle-income countries. The biggest difference is the result of natural resource variable between two groups. For middle-income countries, natural resource is not significant, indicating that Chinese firms invest in middle-income countries among EU are not for seeking natural resource. But for high-income countries, the relationship between dependent variable and the independent variable is negative. The more natural resource, the less Chinese FDI.

6.3 Academic implications

After the Second World War, international direct investment theory was formed. And from 1960s-1980s, the international investment theory gradually mature. The influential theories formed during this period include monopoly advantage theory, product life cycle theory, and international production eclectic theory. Because most of the theoretical basis of this paper comes from the international production eclectic theory, thus only the implications of the international production eclectic theory are discussed in this paper. In the eclectic paradigm theory, Dunning holds that overseas investment is always driven by some factors, such as location advantage and ownership advantage, while location advantage is an important factor for FDI. Subsequently, under the new situation of foreign investment, Dunning (Dunning, 1993) reassessed FDI benefits and divided FDI motivations into market-seeking, strategic assets-seeking, resource-seeking and efficiency-seeking. In addition, resource-seeking and market-seeking are two initial motivations for outward FDI. Because this theory is put forward under the new situation of foreign direct investment, so it provides the theoretical support for the FDI motivation of developing countries. But the theory still falls to become a general theory of FDI because of the following limitations. The eclectic paradigm theory is not an perfect model which can be used in explaining all FDI at the firms, industries and country levels. Thus, the first academic implication of this paper is that all the EU countries were divided into two

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groups based on different economic levels. This means that if you want to use the eclectic paradigm to study FDI in some regions or a big country, maybe you can consider to divide this region or this country and study them separately.

Secondly, in Dunning’s theory, four motivations are the main motivations of FDI location choice as I mentioned before. For example, Zhang & Daly (2011) stated that the determinants of Chinese outward FDI are the volumes of exports from China, GDP per capital and GDP growth. That means Chinese FDI is seeking for the market. But because of the complex realistic situation, it’s not enough just to consider these factors when study FDI location choice. Thus, the second academic implication is that while traditional factors play an important role to explaining location choices of Chinese FDI, the institutional factors also make a big contribution to this issue.

The third academic implication is that the role of natural resources. In the whole world, resource-seeking is always the biggest influential factor of Chinese FDI (kolstad & wiig, 2012). But in the whole EU, influence of natural resource factor for Chinese FDI location choice in the EU countries is not in line with it in the whole world. Natural resources become a preventer for Chinese FDI in the EU.

6.4 Political implications

The findings of this study also provide several political implications. Chinese firms should choose the most suitable investment field and investment method according to their competitive advantages, conduct a comprehensive assessment of the host country's investment environment. Since there is a positive and significant correlation between FDI stock in all the EU countries and strategic assets-seeking, therefore, the Chinese government should guide Chinese enterprises to increase the investment on some strategic emerging industries, such as the new energy, new materials and information technology. For example, Geely acquired Volvo in some countries and then set up R&D center in Northern Europe to obtain the core technology or the brand with a long history, so as to gradually enhance firm’s

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competitiveness in the European market, and establish the development model based on the competitiveness of core technology development and innovation.

Moreover, for institutional factors, the Chinese government could provide basic information to Chinese companies which are interested in investing abroad, especially the information about national security and economic risks.

6.5 Managerial relevance

Due to the different culture, resource endowments and levels of economic development, although the EU has achieved economic integration, different countries have different investment environment and effects. Therefore, in the process of investment in the EU, Chinese enterprises should adopt a diversified investment strategy, not just pay attention to the high-income countries, but invest in the entire EU market. In middle-income countries, Chinese companies can invest in high-profile local brands to expand the local market and to meet their needs for a new market. In the high-income countries, China firms can take advantage of its new generation technology and brands in emerging industries such as new materials, information science and technology, new energy and other industries to enhancing their competitiveness in overseas markets. At the same time, high-income countries’ advanced management and intelligent management are part of their strategic assets. Chinese companies can invest in high-income countries to learn the advanced experience, improve their ability of transnational operations, and to make up for internal deficiencies.

6.6 Limitations and future research

The selection of natural resource variables is the first limitation. In this paper, the proportion of ores and metals exports in the total exports is taken as a variable. But

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that's not enough. Because in the high-income countries of the EU, the natural resources owned by the countries themselves are not abundant, which is a part of the reason why the natural resource variable in the result is not significant. However, oil-rich regions and countries are often the underdeveloped regions and countries with the backward energy exploration technologies and equipment. Meanwhile, oil companies of developed countries always invest in the oil and gas resources in those underdeveloped countries and regions rely on high-exploration and production technology so as to control or occupy the high-quality resources globally. Therefore, many EU countries make the investment in some foreign countries to meet their own needs of natural resources, then control and monopolize resources. Such as ExxonMobil in the United States and Royal Dutch Shell. Therefore, when we study resource-seeking of Chinese foreign direct investment, we should not only depend on whether the energy or mineral resources which owned by host countries are relatively abundant, but also consider their overseas resources investment. The greater the intensity of overseas resource investment, the stronger the global resource control. Regards the host country as a resource investment platform, the home country could acquire the equity of energy company of the host country, and then get the access to the energy and mineral resources outside the host country through mergers and acquisitions, etc. As a result, the selection of natural resources variables in this paper is not sufficient. In future studies, it should not consider only one variable to measure natural resource factors. For example, in addition to the proportion of ores and metals exports in total exports, the host country's abundance of resources and overseas energy investment could be considered to measure the resource-seeking of Chinese FDI in the EU.

The second limitation of this paper is that although there are more and more research papers about FDI from emerging economies, Chinese FDI is still regarded as a relatively new trend. And the international economic situation has undergone great changes after 2008. Both the global financial crisis and the European debt crisis have posed new challenges to Chinese FDI, therefore it is necessary to take into account the different location choices in different periods. Therefore, we could also divide

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2004-2014 into several periods and study them separately in the future.

In addition, accurate measurement of Chinese FDI is very difficult. Different departmental statistics are different. For example, the Chinese government (Chinese National Bureau of Statistics, Chinese Ministry of Commerce) provides investment data for China, and Eurostat provides EU data. Different statistical calibers exist differences, resulting there are some certain errors in empirical results inevitably. Perhaps we could use the data from the same sources as we can.

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ACKNOWLEDGEMENT

It is a genuine pleasure to express my deep sense of thanks and gratitude to my supervisor Dr. Vittoria G. Scalera, assistant professor of International Strategy & Marketing at the Faculty of Economics and Business, University of Amsterdam. Her chariness, responsibility, enthusiasm, valuable comments and feedback have enabled me to complete my thesis.

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