Abstract

In the last 33 years after the People’s Republic of China’s (PRC) openness and reform, huge amounts of foreign direct investment (FDI) flowed into the PRC. The capital inflow and technology spillover in turn enabled outward FDI from the PRC. This paper gives a brief introduction to the PRC’s inward and outward FDI, including their determinants, motives, main characteristics, and impact on the PRC and host countries. Inward FDI contributes to the PRC’s economic growth and industry development, increases tax revenue, and improves labor quality. The contribution of inward FDI to gross domestic product averages around 3%-6%. At the same time, outward FDI improves the PRC’s dynamic efficiency, and helps the host countries with capital inflow and infrastructure improvement. Based on the PRC’s experience, four policy issues are proposed: dynamic mechanism inside FDI, investment liberalization, international coordination, and trade-related policy.

Highlights

  • At the beginning of the People’s Republic of China’s (PRC) reform, the government promoted export and foreign direct investment (FDI) inflows because of a shortage of foreign reserve

  • In 1990, FDI inflows to the PRC stood at $3.5 billion, most of which came from Hong Kong, China; Japan; and the United States (US), which accounted for 54.9%, 14.4%, and 13.1%, respectively

  • Outward FDI going to Organisation for Economic Co-operation and Development (OECD) countries is market-seeking, while those going to non-OECD countries seek a combination of large natural resources and poor institutions

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Summary

INTRODUCTION

At the beginning of the People’s Republic of China’s (PRC) reform, the government promoted export and foreign direct investment (FDI) inflows because of a shortage of foreign reserve. Many companies in Europe and the United States (US) hesitated to invest in the PRC that time, though a few of them tried. At the beginning of investment promotion, most of the FDI inflows came from Hong Kong, China. Export promotion policies seemed not to work either, as the PRC maintained a trade deficit for many years after 1978

Twin Surplus
Balance of FDI Item in Balance of Payment
INWARD FOREIGN DIRECT INVESTMENT
Determinants and Motives
Main Characteristics and New Trends
Inward FDI from Developing Countries or Regions
OUTWARD FOREIGN DIRECT INVESTMENT
Outward FDI to Developing Countries or Regions
FOREIGN DIRECT INVESTMENT AND DEVELOPMENT
Inward FDI and Development
Outward FDI and Development
Dynamic Mechanism
Global Production Network
Findings
CONCLUSION AND POLICY ISSUES
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