HOST-COUNTRY NON-MARKET RISK AND CHINESE ENTERPRISES’ OUTWARD INVESTMENT: EVIDENCE FROM STATE AND FIRM LEVEL DATA
Keywords:
Non-market risk, Outward foreign direct investment, Ownership heterogeneityAbstract
This paper examines how host-country non-market risk affects Chinese enterprises’ outward foreign direct investment (OFDI) and how firm ownership shapes this response. Using an unbalanced panel of Chinese A-share listed firms from 2009 to 2024, we construct indicators of adverse host-country events according to their source and scope, and estimate a two-way fixed effects model. The results show that rising host-country risk significantly reduces Chinese firms’ overseas investment, indicating that uncertainty in the external operating environment increases expected costs, weakens asset security, disrupts contract enforcement, and lowers project continuity. Further evidence suggests that risks with broader international spillovers generate stronger country-level deterrence, while locally embedded disturbances exert a more stable negative effect at the firm level. Ownership heterogeneity is central to the transmission mechanism. The inhibitory effect is concentrated among non-state-owned enterprises, whose decisions are more sensitive to market-based risk-return calculations. By contrast, state-owned enterprises show weaker and statistically insignificant responses, reflecting their strategic roles, institutional support, and stronger risk-absorption capacity. This study enriches the literature on non-market risk and international business, and provides firm-level evidence for differentiated overseas investment risk management and policy support.References
[1] Li Q. Foreign direct investment and interstate military conflict. Journal of International Affairs, 2008, 62(1): 53-66.
[2] Lektzian D, Biglaiser G. Investment, opportunity, and risk: Do US sanctions deter or encourage global investment? International Studies Quarterly, 2013, 57(1): 65-78. DOI: 10.1111/j.1468-2478.2012.00761.x
[3] Zhu M, Xiao D. Geopolitical risk, investment home bias, and bilateral inward foreign direct investment. Journal of Xiamen University (Arts & Social Sciences), 2025, 75(4): 78-91.
[4] Pi S, Ba R, Yang X. Spatiotemporal evolution of armed conflicts in Africa and their impact on China's overseas interests. Tropical Geography, 2025, 45(12): 2224-2237. DOI: 10.13284/j.cnki.rddl.20250296.
[5] Cai W, Chen F. Host country political conflict, Chinese foreign aid, and outward foreign direct investment. China Economic Issues, 2023(2): 83-99.
[6] Zhao M. Do international investment risk factors affect China's OFDI in countries along the Belt and Road? An empirical test based on an extended investment gravity model. International Economics and Trade Research, 2017, 33(2): 15.
[7] Hou N, Wang X, Yu Y. FDI, defense expenditure, and economic growth in countries along the Belt and Road: An empirical study from a spatial correlation perspective. Journal of Lanzhou University (Social Sciences), 2022, 50(5): 27-42. DOI: 10.13885/j.issn.1000-2804.2022.05.003.
[8] Li X. Digital transformation and enterprises' outward foreign direct investment decisions. Journal of Jilin Business and Technology College, 2025, 41(4): 54-62, 70, 127. DOI: 10.19520/j.cnki.issn1674-3288.2025.04.005.
[9] Yu H, Wu W, Zhao Y. Making the best use of the situation: How does digital transformation promote enterprises' outward foreign direct investment? Empirical evidence from listed companies. Journal of Technical Economics and Management, 2025(11): 92-99.
[10] Jiang D, Lu X. Industrial robot application and Chinese enterprises' outward foreign direct investment. Journal of International Trade, 2023(6): 1-17. DOI: 10.13510/j.cnki.jit.2023.06.010.
[11] Xue J, Zhou P. The impact of artificial intelligence on enterprises' outward foreign direct investment. Journal of International Trade, 2025(5): 84-101. DOI: 10.13510/j.cnki.jit.2025.05.003.
[12] Tan W, Liu Y, Shen M. ESG public opinion risk and enterprises' outward foreign direct investment: Evidence from big data on media sentiment. Finance and Trade Research, 2025, 36(10): 36-52, 110. DOI: 10.19337/j.cnki.34-1093/f.2025.10.003.
[13] Wu Z, Yang J. ESG performance and corporate OFDI: The moderating role of the corporate life cycle. Sustainability, 2026, 18(3): 1231. DOI: 10.3390/SU18031231.
[14] Driffield N, Jones C, Crotty J. International business research and risky investments: An analysis of FDI in conflict zones. International Business Review, 2013, 22(1): 140-155. DOI: 10.1016/j.ibusrev.2012.03.001.
[15] Zhang H, Guan B. Current situation, risk challenges, and countermeasures for Chinese manufacturing enterprises' overseas investment. Development Research, 2025, 42(6): 24-27.
[16] Chai Y, Wang Z. National security review risks and responses for Chinese enterprises' direct investment in Central and Eastern Europe. China Foreign Trade, 2025(11): 50-53.
[17] Wang B, Du J, Li X. Is Chinese investment an inhibitor or catalyst of host country internal conflict? World Economics and Politics, 2020(3): 22.
[18] Liu Y, Hu Y, Wang D, et al. The impact of bilateral relations on the obstruction of Chinese enterprises' overseas investment: The moderating role of international public opinion. Investment Research, 2025, 44(6): 22-45.
[19] Liu Y, Zheng Y, Fu Y. Research on the mechanism of overseas economic and trade cooperation zones in promoting China's outward foreign direct investment. Zhejiang Academic Journal, 2026(1): 227-236, 240. DOI: 10.16235/j.cnki.33-1005/c.2026.01.019.
[20] Yang X, Li H, Nie H. Optimizing the business environment for outward investment to enhance Chinese enterprises' brand influence: An empirical study based on the outward investment effect of overseas economic and trade cooperation zones along the Belt and Road. China Brand and Anti-Counterfeiting, 2025(14): 76-78.
[21] Xu H, Chen H. The intersection, conflict, and coordination path between China's overseas investment insurance and bilateral investment treaties under the Belt and Road Initiative. Journal of Guangxi University (Philosophy and Social Science Edition), 2026, 47(06): 126-134. DOI: 10.13624/j.cnki.jgupss.20251223.001.