* Address for Correspondence: Department of Economics E2, University of California, Santa Cruz, CA 95064, USA. Email: cheung@ucsc.edu. We thank Jin Cao, Shin-Horng Chen, Jakob de Haan, Marcel Fratzscher, Eiji Fujii, Michael Funke, Nils Gottfries, Alicia Garcia-Herrero, Jennifer Poole, Lauren Malone, Assaf Razin, Mark Spiegel, Willem Thorbecke, and participants of the TEA/CEANA Conference, the CESifo conference on ‘Macro, Money & International Finance’, and the HKIMR conference on ‘Global Liquidity and East Asian Economies’ for their helpful comments and suggestions. Cheung acknowledges the financial support of faculty research funds of the University of California, Santa Cruz.


Abstract.  We investigate the empirical determinants of China's outward direct investment (ODI). It is found that China's investments in developed and developing countries are driven by different sets of factors. Subject to the differences between developed and developing countries, there is evidence that: (i) both market-seeking and resource-seeking motives drive China's ODI; (ii) Chinese exports to developing countries induce China's ODI; (iii) China's international reserves promote its ODI; and (iv) Chinese capital tends to agglomerate among developed economies but diversify among developing economies. Similar results are obtained using alternative ODI data. We do not find substantial evidence that China invests in African and oil-producing countries mainly for their natural resources.