Chinese Power and the State-Owned Enterprise Randall W. Stone, Yu Wang, and Shu Yu Abstract China has become a leading source of outward foreign direct investment (FDI), and the Chinese state exercises a unique degree of influence over its firms. We explore the patterns of political influence over FDI using a comprehensive firm-level data set on Chinese outward FDI from 2000 to 2013. Using six country-level measures of affinity for China, we find that state-owned and globally diversified firms appear to conform most closely to official guidance. Official investment directives and state visits link investments to state policies; Taiwan recognition and Dalai Lama meetings anchor our political interpretations; and UN General Assembly voting and temporary UN Security Council membership suggest that this intervention may be systematic. The results are robust to country, year, and sector fixed effects, and most do not hold for private or small firms. The results suggest that China uses FDI by prominent state-owned enterprises as an instrument to promote its foreign policy. The rise of China makes it increasingly important to understand China’s foreign policies. Powerful states tend to reshape global governance, and some observers foresee conflict with the United States, 1 while others expect China’s stake in the existing system to temper conflict. 2 Chinese policies are a complex mix of cooperation and challenge, and assessments of their ultimate objectives are highly uncertain. 3 How this posture evolves may depend on the development of China’s network of international relationships, which will constrain its choices and provide opportunities to exert influence in the future. 4 Foreign direct investment (FDI) is among the most important constituents of this network, and the political strategies that influence Chinese FDI remain unexamined. We explore what may be learned about Chinese strategies using firm-level data on Chinese outward FDI. An extensive literature examines the policy preferences of the United States because it plays a unique global leadership role. US preferences played a key role in shaping the international security environment and the global trade and finance regimes. 5 Substantial literatures have explored US trade policy, foreign investment policy, foreign aid, influence over international organizations, and voting in the United Nations. Chinese foreign policy is much more sparsely studied, and while 1. Friedberg 2011. 2. Ikenberry 2011. 3. Johnston 2019. 4. Goddard 2018. 5. Stone 2011. International Organization 76, Winter 2022, pp. 229–50 © The IO Foundation 2021 doi:10.1017/S0020818321000308 https://doi.org/10.1017/S0020818321000308 Downloaded from https://www.cambridge.org/core . IP address: 3.239.81.247, on 23 Apr 2022 at 11:48:36, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms .