How does geopolitical uncertainty affect Chinese overseas investment in the energy sector? Evidence from the South China Sea Dispute

Highlights: • Energy importers tend to reallocate their overseas investment to mitigate the risk of energy supply disruption; • We employ the South China Sea dispute as a quasi-experiment with a DiD approach; • We find empirical evidence that geopolitical uncertainty raises China's oil & gas-related investment to low-risk countries; • Diversification strategy should be adopted to secure energy stability. Based on Chinese outward foreign direct investment data, this study examines the impact of the South China Sea Dispute on China's overseas investments in oil & gas-related sectors. The South China Sea Dispute alarms a potential threat to China's energy supply. By applying a difference-in-difference estimation, we find that the South China Sea Dispute brings about an increase in the frequency of China's oil & gas-related investments to low-risk countries. The findings are robust under several specification tests. It indicates that under geopolitical uncertainty environment, energy-importers will reallocate energy investment in order to avoid the potential disruption of energy supply.