– 1979-1992 FDI inflow of 20.2 billion USD – 1997 stock stood at 196.8 billion USD
5 year inflow of 176.6 billion USD- accounts for 89% stock!
– Compound annual growth rate of FDI @ 44% from 1992-1997
Terms:
– Inflow- quantity of FDI flowing into state over a given time period-dynamic measure
– Stock: total accumulation of investment at a given point in time- static measure
Source: China Business Review (Nov.-Dec. 2000)
-Investment booms in the early 1990’s then retracts in the wake of the Asian financial crisis
What Accounts for the Boom?
Investment threshold set at state level
– US: ‘direct’ when stake exceeds 10% – China (PRC): when stake exceeds 25%
Higher level to encourage larger investment?
What has FDI Done for China?
Role in Economic Transformation-General
– Established new industrial branches – Employment opportunities – Technological transfers – Technological and Managerial Skills
GNP- FDI rose from 2% in ’92 to 5% in ’97
– FDI in S. Korea early ’90’s at .02% GNP
What happened in the early 1990’sspecifically 1992?
The FDI Boom in China
FIE-Led Export Growth
Source: Lardy (1999)
# Approved Applications
1979 - 1982 1983 1984 1985 1986 1987 1988 1989
922 470 1856 3073 1498 2233 5945 5779
1990
外国直接投nvestment (FDI)
When is investment best defined as ‘direct?’
– When investment gives rise to foreign control of domestic assets
– IMF- “…made to acquire a lasting interest in an enterprise where the investor has an effective voice in the mamagment of the company”
Foreign Direct Investment (FDI)
Explicit Chinese policy premium on Foreign capital- Why?
productivity 6. Spillovers and Linkages- introduction of
more competitive environment and connections to local industry boost productivity and output of entire economy
7273
1991
12978
1992
48764
1993
83437
1994
47549
1995
37011
1996
24556
1997
21001
Sources: (State Statistical Bureau 1998), p. 138
Approved Inflow
6.01 1.73 2.65 5.93 2.83 3.71 5.3 5.6 6.6 11.98
58.12 111.44
82.68 91.28 73.28
51
Actual Inflow
1.17 0.64 1.26 1.66 1.87 2.31 3.19 3.39 3.49 4.37
11.01 27.52
33.77 37.52 41.73 45.26
The FDI Boom in China
In 2002 China was the #1 recipient of FDI worldwide Rapid FDI growth began in early 1990’s
Spillovers to domestic industry
– International Trade- boosted immensely
Export production by Foreign-Invested Enterprises
– Increased from 1% in ’85 to 45% in ‘98
FDI- What Does it Offer?
1. Capital- long-term, risky investment 2. Market Access- export markets 3. Promote Export-led strategies of growth 4. Employment 5. Technology- transfers increase