Abstract
Building on the growing debate on political determinants of foreign direct investment, we investigate the relationship between US political influence and the global distribution of China’s outward foreign direct investment (OFDI). Using country-level and firm-level datasets of China’s greenfield investment, we find strong evidence that Chinese state controlled firms strategically reduce investment in host countries under significant political influence of the US. Our results are robust to alternative specification and two falsification tests. The findings suggest that the Chinese government uses FDI as a way of economic diplomacy.