The asymmetric effect of institutional quality on Chinese outward real estate investment
Abstract
Chinese outward investment in real estate (FDIRE) has increased tremendously in recent years. However, it has attracted little attention in the literature. This study aims to assess the asymmetric impact of institutional quality on Chinese outward FDIRE using an extended gravity model with a real estate institutional factor. Using the unique dataset of Chinese outward real estate investment collected from Real Capital Analytics, we identify the main determinants of China’s outward FDIRE. The results show that the established gravity model and real estate institutional factor together explain China’s outward FDIRE. Specifically, market size and cultural proximity have a positive influence on the FDIRE outflows from China. In addition, institutional factor, namely real estate transparency, has an acute impact on China’s outward FDIRE, whilst it is conditional on the market size of and the economic growth speed of a country, highlighting an asymmetric effect of institutional quality on Chinese outward FDIRE. The implications of the findings have also been discussed.
Keyword : cross border real estate investment, real estate transparency, sectoral analysis, institutional quality, asymmetry, China, foreign direct investment (FDI)
How to Cite
Zhang, J., Lee, C. L., & Chan, N. (2019). The asymmetric effect of institutional quality on Chinese outward real estate investment. International Journal of Strategic Property Management, 23(6), 435-449. https://doi.org/10.3846/ijspm.2019.10429
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Blomkvist, K., & Drogendijk, R. (2013). The impact of psychic distance on Chinese outward foreign direct investments. Management International Review, 53, 659-686. https://doi.org/10.1007/s11575-012-0147-y
Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H., & Xheng, P. (2007). The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38, 499-518. https://doi.org/10.1057/palgrave.jibs.8400277
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Chin, W., Dent, P., & Roberts, C. (2006). An exploratory analysis of barriers to investment and market maturity in Southeast Asian cities. Journal of Real Estate Portfolio Management, 12(1), 49-57.
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Huang, J., & Rong, Z. (2017). Housing boom, real estate diversification, and capital structure: evidence from China. Emerging Markets Review, 32, 74-95. https://doi.org/10.1016/j.ememar.2017.05.008
Hui, E. C. M., & Chan, K. K. K. (2014). Foreign direct investment in China’s real estate market. Habitat International, 43, 231-239. https://doi.org/10.1016/j.habitatint.2014.04.007
Jiang, D., Chen, J., & Isaac, D. (1998). The effect of foreign investment on the real estate industry in China. Urban Studies, 35(11), 2101-2110. https://doi.org/10.1080/0042098984024
Jones Lang LaSalle. (2018). Global Real Estate Transparency Index 2018: transparency: data, disclosure and disruption. London: Jones Lang LaSalle.
KnightFrank. (2015). Chinese outward real estate investment globally and into Australia (pp. 1-12). Sydney: KnightFrank.
Kolstad, I., & Wiig, A. (2012). What determines Chinese outward FDI? Journal of World Business, 47, 26-34. https://doi.org/10.1016/j.jwb.2010.10.017
Lau, H. F. (2003). Industry evolution and internationalization processess of firms from a newly industrialized economy. Journal of Business Research, 56(10), 847-852. https://doi.org/10.1016/S0148-2963(02)00472-1
Lee, C. L., Robinson, J., & Reed, R. (2008). Listed property trusts and downside systematic risk sensitivity. Journal of Property Investment and Finance, 26(4), 304-328. https://doi.org/10.1108/14635780810886627
Lee, C. L., Stevenson, S., & Lee, M. (2018). Low-frequency volatility of real estate securities and macroeconomic risk. Accounting and Finance, 58(S1), 311-342. https://doi.org/10.1111/acfi.12288
Liu, G., Li, K., Shrestha, A., Martek, I., & Zhou, Y. (2018). Strategic business model typologies evident in the Chinese realestate industry. International Journal of Strategic Property Management, 22(6), 501-515. https://doi.org/10.3846/ijspm.2018.6275
Lucke, N., & Eichler, S. (2016). Foreign direct investment: the role of institutional and cultural determinants. Applied Economics, 48(11), 935-956. https://doi.org/10.1080/00036846.2015.1090551
Newell, G., & Lee, C. L. (2011). The impact of alternative assets on the role of direct property in Australian mixed-asset portfolios. Pacific Rim Property Research Journal, 17(4), 531-559. https://doi.org/10.1080/14445921.2011.11104341
Newell, G. (2016). The changing real estate market transparency in the European real estate markets. Journal of Property Investment & Finance, 34(4), 407-420. https://doi.org/10.1108/JPIF-07-2015-0053
PricewaterhouseCoopers. (2017). Tax guide 2017: tax havens. PricewaterhouseCoopers.
Quer, D., Claver, E., & Rienda, L. (2012). Political risk, cultural distance, and outward foreign direct investment: empirical evidence from large Chinese firms. Asia Pacific Journal of Management, 29, 1089-1104. https://doi.org/10.1007/s10490-011-9247-7
Ramasamy, B., & Yeung, M. (2010). The determinants of foreign direct investment in services. World Economy, 33(4), 573-596. https://doi.org/10.1111/j.1467-9701.2009.01256.x
Real Capital Analytics. (2017). Chinese cross-border real estate investments. New York: Real Capital Analytics.
Rodriguez, C., & Bustillo, R. (2010). Modeling foreign direct real estate investment: the Spanish case. Journal of Real Estate Finance & Economics, 41(3), 354-367. https://doi.org/10.1007/s11146-008-9164-9
Rogers, D., Lee, C. L., & Yan, D. (2015). The politics of foreign investment in Australian housing: Chinese investors, translocal sales agents and local resistance. Housing Studies, 30(5), 730-748. https://doi.org/10.1080/02673037.2015.1006185
Rong, Z., Wang, W., & Gong, Q. (2015). Housing price appreciation, investment opportunity and firm innovation: evidence from China. Journal of Housing Economics, 33, 34-58.
Shah, S. H., Ahmad, M. H., & Ahmed, Q. M. (2016). The nexus between sectoral FDI and institutional quality: empirical evidence from Pakistan. Applied Economics, 48(17), 1591-1601. https://doi.org/10.1080/00036846.2015.1103039
Stevenson, S. (2008). Modeling housing market fundamentals: empirical evidence of extreme market conditions. Real Estate Economics, 36(1), 1-29. https://doi.org/10.1111/j.1540-6229.2008.00204.x
Tang, J., Ye, K., & Qian, Y. (2019). Rethinking the relationship between housing prices and inflation: new evidence from 29 large cities in China. International Journal of Strategic Property Management, 23(3), 142-155. https://doi.org/10.3846/ijspm.2019.7800
Tiezzi, S. (2014). China urges companies to ‘Go Global’. The Diplomat. Retrieved from http://thediplomat.com/2014/12/china-urges-companies-to-to-global/
UNCTAD. (2017). World Investment Report 2017. Geneva, UNCTAD.
Weng, Y., & Gong, P. (2017). On price co-movement and volatility spillover effects in China’s housing markets. International Journal of Strategic Property Management, 21(3), 240255. https://doi.org/10.3846/1648715X.2016.1271369
Yeung, H. W. C. (1999). The internationalization of ethnic Chinese business firms from Southeast Asia: strategies, processes and competitive advantage. International Journal of Urban and Regional Research, 3(1), 103-127. https://doi.org/10.1111/1468-2427.00181
Zhan, J. X. (1995). Transnationalization and outward invesment: the case of Chinese firms. Transnational Corporations, 4(3), 67-100.
Zhu, J., Sim, L., & Zhang, X. (2006). Global real estate investments and local cultural capital in the making of Shanghai’s new office locations. Habitat International, 30(3), 462-481. https://doi.org/10.1016/j.habitatint.2004.12.003
Alexsynska, M., & Havrylchnyk, O. (2013). FDI from the South: the role of institutional distance and natural resources. European Journal of Political Economy, 29, 38-53. https://doi.org/10.1016/j.ejpoleco.2012.09.001
Al-Masum, A., & Lee, C. L. (2019). Modelling housing prices and market fundamentals: evidence from the Sydney housing market. International Journal of Housing Markets and Analysis. https://doi.org/10.1108/IJHMA-10-2018-0082
Anderson, J. E. (2011). The gravity model. Annual Review of Economics, 3, 133-160. https://doi.org/10.1146/annurev-economics-111809-125114
Anderson, J. E., & Wincoop, E. V. (2004). Trade costs. Journal of Economic Literature, 42(3), 691-751. https://doi.org/10.1257/0022051042177649
Bi, L., Fan, Y., Gao, M., Lee, C. L., & Yin, G. (2019). Spatial mismatch, enclave effects and employment outcomes for rural migrant workers: empirical evidence from Yunnan Province, China. Habitat International, 86, 48-60. https://doi.org/10.1016/j.habitatint.2019.02.008
Blomkvist, K., & Drogendijk, R. (2013). The impact of psychic distance on Chinese outward foreign direct investments. Management International Review, 53, 659-686. https://doi.org/10.1007/s11575-012-0147-y
Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H., & Xheng, P. (2007). The determinants of Chinese outward foreign direct investment. Journal of International Business Studies, 38, 499-518. https://doi.org/10.1057/palgrave.jibs.8400277
Byrne, P., & Lee, S. (2009). Spatial concentration in institutional investment in the UK: some comparisons between the retail and office sectors. Journal of Property Investment and Finance, 27(1), 5-24. https://doi.org/10.1108/14635780910926649
Cushman & Wakefield. (2018). Chinese capital flows: where to from here? (pp. 1-16). Sydney, Cushman & Wakefield.
CBRE (2015). The expanding role of Chinese capital in global real estate markets (pp. 1-21). CBRE.
Chen, J. J. (2004). Determinants of capital structure of Chineselisted companies. Journal of Business Research, 57, 1341-1351. https://doi.org/10.1016/S0148-2963(03)00070-5
Chin, W., Dent, P., & Roberts, C. (2006). An exploratory analysis of barriers to investment and market maturity in Southeast Asian cities. Journal of Real Estate Portfolio Management, 12(1), 49-57.
Deng, K. K., Wong, S. K., & Chau, K. W. (2018). Institutions and capital structure: the case of Chinese property firms. Journal of Real Estate Finance & Economics, 56, 352-385. https://doi.org/10.1007/s11146-017-9622-3
Dunning, J. H. (1998). Location and the multinational enterprise: a neglected factor? Journal of International Business Studies, 29(1), 45-66. https://doi.org/10.1057/palgrave.jibs.8490024
Dunning, J. H. (2002). Relational assets, networks, and international business activities, Amsterdam, Pergamon.
Eichholtz, P. M. A., Gugler, N., & Kok, N. (2011). Transparency, integration, and the cost of international real estate investments. Journal of Real Estate Finance & Economics, 43, 152-173. https://doi.org/10.1007/s11146-010-9244-5
Erdener, C., & Shapiro, D. M. (2005). The internationalization of Chinese family enterprises and Dunning’s eclectic MNE paradigm. Managament and Organization Review, 1(3), 411-436. https://doi.org/10.1111/j.1740-8784.2005.00021.x
Falkenbach, H. (2009). Market selection for international real estate investments. International Journal of Strategic Property Management, 13(4), 299-308. https://doi.org/10.3846/1648-715X.2009.13.299-308
Farzanegan, M. R., & Fereidouni, H. G. (2014). Does real estate transparency matter for foreign real estate investments? International Journal of Strategic Property Management, 18(4), 317-331. https://doi.org/10.3846/1648715X.2014.969793
Globerman, S., & Shapiro, D. (2002). Global foreign direct investment flows: the role of governance infrastructure. World Development, 30, 1899-1919. https://doi.org/10.1016/S0305-750X(02)00110-9
He, C., Wang, J., & Cheng, S. (2009). What attracts foreign direct investment in China’s real estate development? The Annals of Regional Science, 46(2), 267-293. https://doi.org/10.1007/s00168-009-0341-4
He, C., & Zhu, Y. (2010). Real estate FDI in Chinese cities: local market conditions and regiornal institutions. Eurosian Geography and Economics, 51(3), 360-384. https://doi.org/10.2747/1539-7216.51.3.360
Huang, J., & Rong, Z. (2017). Housing boom, real estate diversification, and capital structure: evidence from China. Emerging Markets Review, 32, 74-95. https://doi.org/10.1016/j.ememar.2017.05.008
Hui, E. C. M., & Chan, K. K. K. (2014). Foreign direct investment in China’s real estate market. Habitat International, 43, 231-239. https://doi.org/10.1016/j.habitatint.2014.04.007
Jiang, D., Chen, J., & Isaac, D. (1998). The effect of foreign investment on the real estate industry in China. Urban Studies, 35(11), 2101-2110. https://doi.org/10.1080/0042098984024
Jones Lang LaSalle. (2018). Global Real Estate Transparency Index 2018: transparency: data, disclosure and disruption. London: Jones Lang LaSalle.
KnightFrank. (2015). Chinese outward real estate investment globally and into Australia (pp. 1-12). Sydney: KnightFrank.
Kolstad, I., & Wiig, A. (2012). What determines Chinese outward FDI? Journal of World Business, 47, 26-34. https://doi.org/10.1016/j.jwb.2010.10.017
Lau, H. F. (2003). Industry evolution and internationalization processess of firms from a newly industrialized economy. Journal of Business Research, 56(10), 847-852. https://doi.org/10.1016/S0148-2963(02)00472-1
Lee, C. L., Robinson, J., & Reed, R. (2008). Listed property trusts and downside systematic risk sensitivity. Journal of Property Investment and Finance, 26(4), 304-328. https://doi.org/10.1108/14635780810886627
Lee, C. L., Stevenson, S., & Lee, M. (2018). Low-frequency volatility of real estate securities and macroeconomic risk. Accounting and Finance, 58(S1), 311-342. https://doi.org/10.1111/acfi.12288
Liu, G., Li, K., Shrestha, A., Martek, I., & Zhou, Y. (2018). Strategic business model typologies evident in the Chinese realestate industry. International Journal of Strategic Property Management, 22(6), 501-515. https://doi.org/10.3846/ijspm.2018.6275
Lucke, N., & Eichler, S. (2016). Foreign direct investment: the role of institutional and cultural determinants. Applied Economics, 48(11), 935-956. https://doi.org/10.1080/00036846.2015.1090551
Newell, G., & Lee, C. L. (2011). The impact of alternative assets on the role of direct property in Australian mixed-asset portfolios. Pacific Rim Property Research Journal, 17(4), 531-559. https://doi.org/10.1080/14445921.2011.11104341
Newell, G. (2016). The changing real estate market transparency in the European real estate markets. Journal of Property Investment & Finance, 34(4), 407-420. https://doi.org/10.1108/JPIF-07-2015-0053
PricewaterhouseCoopers. (2017). Tax guide 2017: tax havens. PricewaterhouseCoopers.
Quer, D., Claver, E., & Rienda, L. (2012). Political risk, cultural distance, and outward foreign direct investment: empirical evidence from large Chinese firms. Asia Pacific Journal of Management, 29, 1089-1104. https://doi.org/10.1007/s10490-011-9247-7
Ramasamy, B., & Yeung, M. (2010). The determinants of foreign direct investment in services. World Economy, 33(4), 573-596. https://doi.org/10.1111/j.1467-9701.2009.01256.x
Real Capital Analytics. (2017). Chinese cross-border real estate investments. New York: Real Capital Analytics.
Rodriguez, C., & Bustillo, R. (2010). Modeling foreign direct real estate investment: the Spanish case. Journal of Real Estate Finance & Economics, 41(3), 354-367. https://doi.org/10.1007/s11146-008-9164-9
Rogers, D., Lee, C. L., & Yan, D. (2015). The politics of foreign investment in Australian housing: Chinese investors, translocal sales agents and local resistance. Housing Studies, 30(5), 730-748. https://doi.org/10.1080/02673037.2015.1006185
Rong, Z., Wang, W., & Gong, Q. (2015). Housing price appreciation, investment opportunity and firm innovation: evidence from China. Journal of Housing Economics, 33, 34-58.
Shah, S. H., Ahmad, M. H., & Ahmed, Q. M. (2016). The nexus between sectoral FDI and institutional quality: empirical evidence from Pakistan. Applied Economics, 48(17), 1591-1601. https://doi.org/10.1080/00036846.2015.1103039
Stevenson, S. (2008). Modeling housing market fundamentals: empirical evidence of extreme market conditions. Real Estate Economics, 36(1), 1-29. https://doi.org/10.1111/j.1540-6229.2008.00204.x
Tang, J., Ye, K., & Qian, Y. (2019). Rethinking the relationship between housing prices and inflation: new evidence from 29 large cities in China. International Journal of Strategic Property Management, 23(3), 142-155. https://doi.org/10.3846/ijspm.2019.7800
Tiezzi, S. (2014). China urges companies to ‘Go Global’. The Diplomat. Retrieved from http://thediplomat.com/2014/12/china-urges-companies-to-to-global/
UNCTAD. (2017). World Investment Report 2017. Geneva, UNCTAD.
Weng, Y., & Gong, P. (2017). On price co-movement and volatility spillover effects in China’s housing markets. International Journal of Strategic Property Management, 21(3), 240255. https://doi.org/10.3846/1648715X.2016.1271369
Yeung, H. W. C. (1999). The internationalization of ethnic Chinese business firms from Southeast Asia: strategies, processes and competitive advantage. International Journal of Urban and Regional Research, 3(1), 103-127. https://doi.org/10.1111/1468-2427.00181
Zhan, J. X. (1995). Transnationalization and outward invesment: the case of Chinese firms. Transnational Corporations, 4(3), 67-100.
Zhu, J., Sim, L., & Zhang, X. (2006). Global real estate investments and local cultural capital in the making of Shanghai’s new office locations. Habitat International, 30(3), 462-481. https://doi.org/10.1016/j.habitatint.2004.12.003