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US economic policy uncertainty and China’s outward investment diversification

Author

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  • Kim, Hee-Eun
  • Lee, Wonkyung
  • Moon, Jiyong

Abstract

This study investigates the impact of US economic policy uncertainty (EPU) on the diversification of China’s outward foreign direct investment from Q1 2005 to Q4 2022. We find that US EPU significantly influences Chinese firms to diversify their overseas investment geographically, suggesting that they tend to reduce their exposure to the US market and expand their investment portfolios across different regions as a risk mitigation strategy. We also find that the influence of US EPU on Chinese firms’ diversification decisions intensifies during the US-China trade conflicts, with this effect being more pronounced among Chinese state-owned enterprises.

Suggested Citation

  • Kim, Hee-Eun & Lee, Wonkyung & Moon, Jiyong, 2025. "US economic policy uncertainty and China’s outward investment diversification," Finance Research Letters, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finlet:v:73:y:2025:i:c:s1544612324016490
    DOI: 10.1016/j.frl.2024.106620
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    More about this item

    Keywords

    Economic policy uncertainty; Outward foreign direct investment; Diversification; Connectedness; US-China trade conflict;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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