China’s Regulatory Framework for Outward Foreign Direct Investment

Karl P. Sauvant, Victor Zitian Chen
JEL codes: 

China has become the world’s third largest outward investor, behind the United States and Japan. A growing body of literature suggests that China’s regulatory framework for outward foreign direct investment (OFDI) is a determinant of the country’s rising OFDI. This paper presents a holistic review of that framework, including some possibilities for its improvement. Overall, China’s framework serves two objectives: to help Chinese firms become more competitive internationally and to assist the country in its development effort. In pursuing these objectives, the regulatory framework has moved from restricting, to facilitating, to supporting, to encouraging OFDI; but there are still strong elements of administrative control that make it cumbersome. State-owned enterprises (SOEs) seem to benefit particularly from the current framework when internationalizing through FDI.