Location Differences between Privatized State-Associated Enterprises (PSEs) and Privately Owned Enterprises (POEs) from China in Outward Foreign Direct Investment (OFDI)

This study examines the determinants of foreign direct investment (FDI) location choices by Chinese firms from a unique perspective. Based on research into the privatization process in China, we categorize Chinese private enterprises into two types: Privatized state-associated enterprises (PSEs) which had been founded as state firms and completely privatized later, and enterprises that have been privately owned from their founding (POEs). To our knowledge, this has not been done before in the international business literature. In this paper, we establish four hypotheses regarding the differences between PSEs and POEs in how they select outward FDI (OFDI) locations and empirically test these by estimating a regression model, using the host country variables of natural resources, strategic assets, risk and Chinese networks. The results indicate that PSEs are more attracted to host countries with rich natural resources and strategic assets than POEs. However, PSEs are less concerned with local Chinese networks. This study is the first attempt to investigate how privatized state enterprises and purely private firms differ in their FDI location choices. It recognizes the profound impact of both the Chinese privatization process and the intra-group heterogeneity of private firms on their FDI behavior by a comparison between PSEs and POEs that has not previously been explored in the extant literature.