Foreign Direct Investment in China

Abstract

The growth of foreign direct investment (FDI) in China has been very impressive during the past 16 years. Since 1993 China has become the second largest FDI recipient in the world and the single largest host country among the developing countries. However, in terms of the regional, sectoral, industrial and source country distribution of FDI inflows into China, several issues are worth studying. This paper finds that, first, the regional distribution of FDI inflows into China has been very uneven and mainly concentrated in the East region, which may reinforce the regional disparity between the East and West regions in terms of economic development. Second, among the economic sectors, industry and real estate sectors are the major FDI recipients. Agriculture and infrastructure sectors have received very little FDI inflows though the Chinese government has made a lot of effort to attract FDI inflows into these sectors. Third, FDI inflows into China are mainly concentrated in labour intensive manufacturing industries, which reveals that taking advantage of China’s cheap labour is the main motive for foreign investors in China. Fourth, FDI inflows into China have been dominated by NIEs, especially by Hong Kong. This paper discusses several factors for the domination of NIEs’ investments in China. Finally, this paper discusses the recent policy and regulation changes towards FDI and the corresponding implications.