The Effects of US Sanctions on Chinese Public and Private Overseas Foreign Direct Investment

This article investigates the effects of US sanctions on Chinese public and private overseas foreign direct investment (FDI). Using data for up to 112 developing countries from 2005 to 2015, we find that Chinese state-owned enterprises (SOEs) are more likely to invest in countries threatened or targeted with US sanctions relative to Chinese privately owned enterprises (POEs) because they have the Chinese government's backing and are larger in number and size, motivating them to invest in higher-risk states. The Chinese government also reaps political benefits by Chinese SOEs investing abroad, enhancing China's economic strength and decreasing its rivals' influence. We obtain similar results for Chinese SOEs and POEs regardless of the investment sector and conduct additional robustness checks that further reinforce the main findings. Our study provides insights into how China's overseas FDI increases its economic and political reach across the globe at the possible expense of the United States.