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The Impact of Foreign Bank Presence on Foreign Direct Investment in China

Author

Listed:
  • Steven ONGENA

    (University of Zurich, Swiss Finance Institute, and CEPR)

  • Shusen QI

    (Tilburg University)

  • Fengming QIN

    (Shandong University)

Abstract
We analyze the impact of foreign bank presence on foreign direct investment (FDI) in China. The connection between the two could be particularly relevant for an emerging economy like China because the supply of financial services provided by banks may act as a constraining factor. Foreign bank presence may then enable and foster FDI and not simply result from it. Our estimates demonstrate that FDI across regions in China is increasing in the existing network of regional branches of foreign banks, which itself is driven (and, therefore, instrumented) by the timing of the regional phasing out of the local limits for foreign banks on local currency business. The effect of foreign bank presence on FDI is particularly strong for some specific sectors (farming, manufacturing, construction, transportation, wholesale/retail trade and real estate) if those sectors are importantly represented in the source economies.

Suggested Citation

  • Steven ONGENA & Shusen QI & Fengming QIN, 2014. "The Impact of Foreign Bank Presence on Foreign Direct Investment in China," Swiss Finance Institute Research Paper Series 14-13, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1413
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    File URL: http://ssrn.com/abstract=2399478
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    Citations

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    Cited by:

    1. Yao, Yao & Chen, George S. & Zhang, Lin, 2021. "Local financial intermediation and foreign direct investment: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 72(C), pages 198-216.
    2. Haiyue Liu & Zhimin Yi & Hua Shang & Zihan Liu, 2024. "Foreign bank entry and the outward foreign direct investment of companies: evidence from China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 55(7), pages 896-913, September.
    3. Shujie Yao & Fan Zhang & Pan Wang & Dan Luo, 2017. "Location Determinants of China's Outward Foreign Direct Investment," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 25(6), pages 1-27, November.
    4. Steven Poelhekke, 2016. "Financial Globalization and Foreign Direct Investment," Tinbergen Institute Discussion Papers 16-098/VIII, Tinbergen Institute.
    5. Xueting Liao & Cheng Yu & Lijuan Xie, 2024. "Do Bank Linkages Facilitate Foreign Direct Investment? An Analysis of Global Evidence," Sustainability, MDPI, vol. 16(22), pages 1-16, November.
    6. Lu, Liping & Tumer-Alkan, Gunseli & Zhang, Haiyang & Xu, Binbin & Wu, Weixing, 2021. "Do bank loans still convey information to investors? Evidence from the split share structure reform in China," Emerging Markets Review, Elsevier, vol. 48(C).
    7. Bellak, Christian & Leibrecht, Markus & Chaisse, Julien, 2022. "Reforming International Investment Agreements," Department of Economics Working Paper Series 328, WU Vienna University of Economics and Business.
    8. Sana Ashraf & Shahroz Ashraf & Asad Abbas & Dr Muhammad Ramzan Sheikh, 2023. "Cross-Border Support: A Solution to Poverty and Inequity in Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 12(4), pages 672-681.
    9. Christian Bellak & Markus Leibrecht & Julien Chaisse, 2022. "Reforming International Investment Agreements: The Case of China and Foreign Direct Investment," Department of Economics Working Papers wuwp328, Vienna University of Economics and Business, Department of Economics.

    More about this item

    Keywords

    Foreign direct investment; foreign bank presence; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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