The Effects of the Institutional Environment on the Internationalization of Chinese Firms - Part 12

Li (2007) observed that it is evident that Chinese firms are more effective in internationalization due to their strong governmental ties.

Having a good relationship or guan xi with the government is just the starting point. Chinese firms have recognized that it is more important to know how to use or to leverage the linkages in their internationalization process. On the other hand, the Chinese government has been well aware that providing firms with capital or resources alone is not enough. The more important role for the government is to create a supportive environment that stimulates more firms to “go out.” In recent years, the Chinese government launched a series of policy initiatives to support and facilitate outward FDI, for example, by actively participating in various bilateral and multilateral arrangements to protect overseas investment (UNCTAD, 2006), gradually relaxing foreign exchange controls, and providing preferential credit for overseas investment. In October 2004, the NDRC and the Export-Import Bank of China (EIBC) issued a circular to promote such overseas investments as (1) projects that promote the export of domestic technologies, products, equipment and labor; (2) overseas R & D centers that utilize advanced technologies and managerial skills; and (3) M&A that could enhance the international competitiveness of Chinese enterprises and accelerate their entry into overseas markets. The EIBC also provides special loans for overseas investments through its export credit plan and accelerates the process of project screening (UNCTAD, 2006).

The organizational learning taking place in those firms that make use of the linkage and leverage process allows the firms to perform these operations more effectively and to achieve better performance in international markets. At the same time, interactions between the firms and government can have substantial influence on government policies. For example, one of the findings of a 2005 survey of Chinese firms having overseas investments pointed out that the restrictions on the use of foreign exchange were too stringent (Yao & He, 2005). The response by the State Administration of Foreign Exchange to abolish quotas on the purchase of foreign exchange for overseas investments on July 1, 2006 reflected the willingness of the government to interact with the firms and to take action to address firms' concerns.

As reviewed above, one of the major motivations for outward FDI for Chinese MNCs is asset exploration and asset seeking (Liu & Li, 2002; Young, et al., 1996).

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