The Impact of China–Africa Bilateral Tax Treaties on Chinese Foreign Direct Investment in Africa

ABSTRACT African countries are entering into bilateral tax treaties with China for attracting more Chinese foreign direct investment (FDI), although the effectiveness of tax treaties in attracting FDI is controversial. This paper provides the first empirical assessment of the impact of China–Africa bilateral tax treaties on Chinese foreign direct investment for 47 African countries over 2003–2020. Across various robustness checks, difference‐in‐differences results indicate that China–Africa bilateral tax treaties have a positive, and statistically significant impact on Chinese foreign direct investment stocks in the treaty countries in Africa 3 years after the effectiveness of the treaty. The substantial corporate tax incentives offered by African governments to foreign investors, delay the realisation of the positive effect of those treaties on Chinese FDI. This implies that rationalising tax incentives can accelerate the materialisation of FDI benefits from treaties. Moreover, the positive FDI effect of China–Africa tax treaties materialises sooner for resource‐rich countries. These results suggest that China–Africa tax treaties can stimulate Chinese FDI to African countries, especially in resource‐rich countries in the medium and long term, in addition to other potential benefits such as improved information exchange for tax purposes, technical assistance in combating tax evasion and strengthened economic and diplomatic relations with China.