Exploring the use of offshore intermediary jurisdictions by Chinese MNEs for the purposes of ‘onward-journey’ transit FDI: implications for measuring and understanding Chinese MNE activity

This paper explores (i) the extent to which Chinese multinational enterprises (CMNEs) undertake FDI via intermediary jurisdictions (also termed capital in transit (CIT)) and (ii) identifies the specific offshore locations used by CMNEs to conduct CIT. We use newly available OECD/IMF bilateral FDI stock data reporting both immediate and ultimate FDI between nations, which allows us to construct a CIT index and empirically test whether Chinese MNEs have a higher propensity for CIT than those from other countries. We demonstrate that CMNEs are indeed outliers with regard to CIT and identify the specific hubs they use drawing from the Orbis database. Our findings imply, among other things, that nationally aggregated Chinese FDI data is systematically biased when used for the purposes of measuring CMNE activity. We then discuss the problems this has created for many studies analysing CMNE activity that have used data collected at the firm-level. In conjunction, our empirical findings provide further insights into the extent, reasons and ways in which CMNEs exploit the offshore world and how this potentially confounds our understanding of their activities.