The determinants of Chinese foreign direct investment in the European Union

Chinese foreign direct investment (FDI) has been exacerbating fears in the European Union (EU) by being concentrated in strategically important sectors. To address worries about Chinese investments with efficient policies and to identify wanted and unwanted investments, it is crucial to understand the determinants of Chinese FDI flows to the EU. This paper employs panel data analysis to investigate these determinants, using data from between 2005 and 2018. Results show that market growth, political stability, corruption control, and trade relations are not statistically significant. However, the number of patent applications in the host country has a positive significant impact on Chinese FDI inflows, while FDI restrictions have a significant negative impact. Results of this paper indicate that the EU’s recent FDI policy is targeting Chinese investments from the right angle and its screening mechanism, with improvements, can become the most efficient tool to handle Chinese investments in the bloc.