Building a Favourable Investment Environment: Evidence for the Facilitation of FDI in China

Abstract

T HE inflows of foreign direct investment (FDI) into China and in particular to Guangdong since China’s economic opening in 1979 have contributed significant economic growth in China. Accelerated growth and wealth accumulation continued especially after Deng’s speech in 1992 to reaffirm the Central government’s intention and commitments in economic opening. During the past two decades, Guangdong has been and remained the major province to attract the largest share of FDI and especially from Hong Kong although its dominating position is challenged by the rise of the Shanghai-Jiangsu region in recent years (Tuan and Ng, 2001a). Following China’s economic opening and especially after 1992, foreign capital inflows into China increased rapidly. Total realised capital inflow recorded a cumulated total of US$530.0 billion for the period of 1979 to March 2001; while FDI accounted for a significant proportion of 66.6 per cent. The upsurge of FDI exerted profound contributions to the country’s income and asset formation. In 1985, FDI accounted for only 0.54 per cent and 1.34 per cent of GDP and fixed asset formation, respectively, but increased ten-fold to 5.4 per cent and more than eight-fold to 11.0 per cent in 1995, respectively, in only ten years’ time. In 1997, the respective figures were 5.02 per cent and 10.53 per cent. The successful promotion leading to the upsurge of FDI into China during the past two decades and, hence, the induced vigorous growth in trade flows, tax contributions and industrial employment, has its roots. Other than the FDI