Research on overseas business decision and risk response of Chinese firms under the US Section 301 Investigation shock : a case study in Ningbo

Abstract

Based on the results of the “US Section 301 investigation”, the United States has imposed several rounds of import tariffs on Chinese export products and has taken measures to “restricted the technology transfer” to China, in response to China's rising competitive threat to the world leadership which was dominated by the United States for a long time. Generally speaking, the competition between China and the United States, the two largest economies in the world, will probably continue to exist till the next decade, which will impose a profound impact on the global economic and trade development. Taking Ningbo City, an important pilot area of China in participating in international trade and investment, this study aims to measure the impact of the “US Section 301 investigation” event on Chinese firms' overseas business decisions and risk response behaviors. Firstly, this paper collects "basic information" and "overseas business overview" of sample firms through stratified random sampling based first-hand questionnaire survey, as well as follow-up phone call interviews. The attitudes and judgments of sample firms about "overseas investment decision-making strategy and future planning", "the impact of the US Section 301 investigation on overseas business", "the impact of US-China trade war and COVID-19 on firms' participation in global value chains" were also collected and analyzed. Secondly, based on the information and data obtained from the questionnaire, statistical analysis is conducted, and empirical models are also constructed to identify the driving factors for firms’ overseas business decisions. This paper also examines the extent to which the "US Section 301 investigation" affects firms' overseas business and economic performance, and analyzes the role of firms' expectations of the impact. Finally, this paper quantitatively examines the impact of the US-China trade war and COVID-19 on firms’ performance at different positions in the production chain. The main results show that: firstly, the characteristics of Chinese firms, such as the size of employees, whether the firm is qualified as National High-tech Firms, whether it is listed and whether it is with foreign or Hong Kong, Macao and Taiwan ownership, will affect the extent to which the firm's overseas business is hindered by the "US Section 301" shock. Secondly, the degree of the above obstacles will affect the attitudes of firms towards the China-US economic and trade frictions. The greater the overall negative impact on firm’s overseas business, the more inclined firms are towards a conservative attitude of "Tolerated compromise" or "Maintaining the status quo". Thirdly, both the degree of obstruction and expected attitude will further affect firms' divestment diversion behavior and risk shifting behavior. If firm's investments in the United States is seriously blocked, and if the firm supports China holding the "Tolerated compromise or maintaining the status quo" response strategy, such firms are more likely to divestment from the United States. Fourthly, upstream raw material suppliers have been more hindered by COVID-19, while midstream manufacturers and downstream assembly manufacturers have been more hindered by the "US Section 301" shock.