Foreign Direct Investment by the Republic of Korea in the People’s Republic of China

The main purpose of this paper is to investigate the patterns and performance of outward foreign direct investment from the Republic of Korea to the People’s Republic of China using five performance measures of the subsidiaries and four explanatory variables. The explanatory variables have close correlations with the export to sales ratio, the local management ratio, and the local procurement ratio (three performance measures selected to reflect subsidiaries’ contribution to the host country). However, no clear relationship was found between explanatory variables and financial performance measures such as operating profit on sales and net profit on sales. In terms of strength of the relationship, the number of years a subsidiary has been in operation was found to have a consistently positive and significant relationship with the export to sales ratios in the three manufacturing industries examined. In light of the major findings, an important aspect is that since the characteristics of subsidiaries may affect performance in different (sometimes opposite) ways, policymakers should establish and implement foreign direct investment policies in a differentiated and targeted manner.