Research on ASEAN Economic Policy Uncertainty and Chinese Manufacturing Enterprises' Direct Investment in ASEAN

Lin Cong; Qing  Li

Authors

Lin Cong Panyapiwat Institute of Management, Nonthaburi, Thailand
Qing Li Panyapiwat Institute of Management, Nonthaburi, Thailand

Keywords:

Economic Policy Uncertainty, Direct Investment in ASEAN, Firm Heterogeneity

Abstract

With the increasing integration of economic development worldwide, the Association of Southeast Asian Nations (ASEAN) has emerged as a crucial trade and investment partner for China, playing a significant role in its outward direct investment (ODI) strategy. ASEAN's stable economic growth has attracted substantial foreign capital, with Chinese investments increasing significantly, from $224 million in 2003 to $16.063 billion in 2020. The Regional Comprehensive Economic Partnership (RCEP) has further expanded opportunities for economic and trade cooperation between China and ASEAN. This study examines the relationship between ASEAN’s economic policy uncertainty (EPU) and Chinese ODI, utilizing data from manufacturing firms listed on China's A-share market from 2003 to 2023. An econometric model is employed to analyze the impact of EPU, considering factors such as enterprise financing constraints, ownership, industry characteristics, and time. The findings reveal that ASEAN's economic policy uncertainty negatively affects Chinese ODI, leading to a decline in investment due to increased risks and cautious investment strategies. The heterogeneity analysis highlights varying responses among different types of enterprises. Firms with lower financing constraints are more likely to invest in ASEAN when EPU decreases, as they possess greater financial flexibility. Non-state-owned enterprises exhibit a higher tendency to invest despite policy uncertainty, benefiting from their adaptability and reduced administrative restrictions. In terms of industry attributes, technology-intensive enterprises are the most likely to invest in ASEAN, leveraging their competitive advantages and innovation capacity. Capital-intensive enterprises show a moderate likelihood of investment, while labor-intensive enterprises are the least likely due to their vulnerability to external uncertainties. These findings underscore the importance of policy stability in fostering Chinese investments in ASEAN and provide insights into how different enterprise characteristics influence investment decisions under varying economic conditions.

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