influence of foreign direct investment on the developement of china - marta michalska
TRANSCRIPT
Student’s name and surname: Marta Michalska ID: 138666 First cycle studies Mode of study: full time studies Field of study: Management BACHELOR’S THESIS Title of thesis: Influence of Foreign Direct Investment on the development of China Title of thesis (in Polish): Wpływ Bezpośrednich Inwestycji Zagranicznych na rozwój
Chin
Supervisor Head of Department
signature signature
Dr.Joanna Wolszczak-Derlacz Dr.hab.Jerzy Ossowski
Gdańsk, 2014
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Table of contents
Introduction ....................................................................................................................... 3
1. Foreign Direct Investments – definition and measurement ....................................... 5
1.1 Foreign Direct Investments – definition and classification ................................ 5
1.2 Measurement of FDI........................................................................................... 8
1.3 Theories of FDI .................................................................................................. 9
1.4 Strategies of FDI............................................................................................... 13
1.5 Advantages connected with Foreign Direct Investment for the host country .. 15
1.6 Risk connected with Foreign Direct Investment for the sending country ........ 16
2. FDI in China in the period 1978-2013 ..................................................................... 19
2.1 General macroeconomic situation of China ..................................................... 19
2.2 Inflows and outflows of FDI in China.............................................................. 21
2.2.1 Inward FDI ................................................................................................ 22
2.2.2 Outward FDI ............................................................................................. 26
2.3 FDI in China from international perspective .................................................... 31
3. The impact of inward and outward FDI on Chinese economy and prospects ......... 34
3.1 Main effects of FDI .......................................................................................... 34
3.2 Forecast of economic development in China by 2050 ..................................... 41
Conclusion....................................................................................................................... 44
References ....................................................................................................................... 46
List of tables .................................................................................................................... 49
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Introduction
In recent years, in period of intensive globalization and internationalization,
Foreign Direct Investment inflows became one of the most important factors of the
developing process on the global scale.. Among the whole world countries compete
with each other to attract the highest amount of investors, by providing them favourable
conditions. The inflow of the capital has a spectacular influence on the economic
growth and international trade in host countries. However, attracted capital brings the
most desirable effects, especially in developed countries. Proper taking an advantages of
FDI inflows bring also technology and knowledge, creation of new jobs and ways of
management.
This thesis will take a closer look on Foreign Direct Investment its structure,
determinants and effects on China. There are one main hypothesis that will be verifying
in this study - FDI as a main source of Chinese success and its huge influence on
economic growth and development.
During last decades China experienced huge economic growth.1 In 30 years
transform from poor, agricultural country to the second most powerful country on the
global area. Foreign Direct Investment (FDI) contributed significantly to this
phenomenon, where China is the best example among developing countries of the
proper exploitation of this market instrument. Implemented open-door policy and later
on join to the WTO encouraged foreign investors and at the same time promoted China
to become the second biggest recipient of FDI right after United States. The inflows to
China are the largest of any developing countries and have remained with stable growth
despite global crisis and fluctuations on Asian market. However, China does not only
attract FDI inflows, but also becomes the significant investor in other developing
countries.2
The thesis consist of Introduction, three chapters and conclusion. The first
chapter contains theoretical part with definition of FDI, its measurement and chosen
theories. Next there are shown common strategies, advantages of Foreign Direct
Investment for recipient and possible risk for sending country connected with FDI.
1 According to the OECD statis tics, in period 2000-2010 the average growth in China reached 10,3%,
while USA average growth in years 2000-2010 reached only 2,3% 2 K. Starzyk, Zagraniczne inwestycje bezpośrednie w rozwoju gospodarczym Chin , Wydawnictwo
Naukowe Semper, Warszawa 2001, p.10-60
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The second chapter brings closer the general outlook on China macroeconomic
situation in last decades. It also presents the features of inward FDI as well as forward
FDI, and its share in Chinese economy. In this part Foreign Direct Investment in China
is also shown from international perspective and the performance of Chinese economy
is compared to other countries. It is also mentioned rising role of ‘Chinese FDI’ in the
different part of the world.
The third chapter is summing up whole paper by presenting effects of FDI on
Chinese economy and how it changed in the space of last decades. At the end there is
future outlook and perspectives of future development in China.
The study is based mainly on the analysis of the previous publications dedicated
to the topic of FDI in China. Commonly available books, articles and also internet
portals were helpful. The analysis is enriched by presentation of different statistics with
data were generally taken from OECD, UNCTAD and World Bank.
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1. Foreign Direct Investments – definition and measurement
1.1 Foreign Direct Investments – definition and classification
In the subject literature, Polish as well as English, we can find wide range of
definitions of FDI. It can be defined in a different way in order to the type of analysis.
On the level of macroeconomic analysis, Foreign Direct Investment is one type of the
capital flow on the international scale, included into the balance of payments. The most
common definition of FDI was made by the Organization for Economic Co-opertion
and Development (OECD) and the International Monetary Fund (IMF).3
According to the OECD definition Foreign Direct Investment it is “a capital
invested for the purpose of acquiring a lasting interest in an enterprise, and exerting a
degree of influence on that enterprise’s operations”4. So it is an investment undertaken
by the resident of one country ( direct investor ) in order to achieve long-term influence
and control of the company in other country. This investment is based on placement of
capital in the company of the other country. Those two features – permanent influence
and control – distinguish FDI from “portfolio investments, which are limited only to
purchasing assets to earn a rate of return”5, without involvement into management of
the company. What is more Foreign Direct Investment is considered as long-term form
of capital investment, in a comparison to the portfolio investment.
The most common way of the control by an investor is the ownership of whole
or part of the capital. It can be hard to distinguish FDI from portfolio investment,
because bout of them are connected with the partial ownership of the capital. However,
if the volume of the share capital is at least 10% the investment is considered as the
FDI, when is under 10%, it is treated as a portfolio investment. Foreign Direct
Investment is based on possession of minimum 10% of shares or stocks in core capital
of the company or rights to 10% of the votes on the general meeting of shareholders.6
3 S.Domżalski, Zagraniczne inwestycje bezpośrednie jako czynnik otwierania gospodarek Azji
Południowo-Wschodniej na przykładzie Malezji, Wydawnictwo Naukowe Semper, Warszawa 2011, p. 16 4 OECD Benchmark Definition of Foreign Direct Investment: Fourth Edition 2008, p.48,
http://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf (2014.04.04) 5 Balance of Payments and International Investment Position Manual – Sixth Edition (BPM6), Chapter 6,
January 2010, p. 99, http://www.imf.org/external/pubs/ft/bop/2007/pdf/chap6.pdf (2014.04.04) 6 OECD International Direct Investment: Policies and Trends In The 1980s, 1992, p. 7
6
Considering the International Monetary Fund (IMF) is “defined as an
incorporated or unincorporated enterprise in which a foreign investor owns 10 per cent
or more of the ordinary shares or voting power of an incorporated enterprise or the
equivalent of an unincorporated enterprise.”7
There are different types of Foreign Direct Investments. Classification of FDI
can be made by taking into consideration for e.g.: strategy, involved capital, motives or
direction. From the involved capital point of view, we can distinguish two different
types of FDI:
Greenfield investments – investment which is set up from scratches, connected
with possession of proper resources ( not only cash holdings ) and knowledge,
which will allows to run a business independently on foreign market. This form
of investment can be set up only by the owner or with help of the local partner.
It guarantee the highest level of control the business, secure of internal resources
and knowledge as well as full commitment in profits. However, this investment
is also connected with high costs of entering the market, ex.: building relations
and connections with providers and distributions channel, government –which is
necessary for existence in the new environment.8 Sometimes it may take form
of joint-venture ( joint creation), where the new entity is created with national
partner. It allows foreign investors avoid or limit the risk connected with lack of
knowledge of the local market and at the same time “gives domestic investors
access to financial resources, knowledge, and technology much above what is
available locally”. 9 There can be economic impact for the host economy of
greenfield investment such as job creation. This kind of investment is rather
targeted in developing countries, where the markets are less competitive.10
Brownfield investments ( mergers and acquisitions ) –taking over the control
part or whole existing company on a level which allows for the management and
control. Investors can modernize and restructure (replacement of equipment,
technology, human resources and assortment) an acquired company in a way
that will make the enterprise competitive on the market. This kind of investment
7 IMF Committee on balance of payments statistics and OECD workshop on international investment
statistics, Definition of Foreign Direct Investment (FDI) Terms, Canada 2004, p. 4 8 M.Jaworek, Ocena Ekonomicznej Efektywności Bezpośrednich Inwestycji Zagranicznych w Praktyce
Polskich Przedsiębiorstw, Wydawnictwo Naukowe Uniwersytetu Mikołaja Kopernika, Toruń 2013, p. 47 9 A.Kłysik-Uryszek, Economic effects of FDI inflow into the region, Science Society of Łódź, Łódź 2011,
p.15 10 http://www.imf.org/external/np/sta/bop/pdf/diteg42829.pdf (2014.03.15)
7
is connected with lower risk ( existing company already possess consumer
loyalty, distribution channel and connections with providers). What is more it is
easy to verify financial situation. Acquisition of a company allows omit the most
risky and difficult phase of investment – the beginning – while launching new
product to the market and gaining clients loyalty, but acquiring existing
company is like buying sth ‘ on spec’. The brownfield projects, combining
resources from alternative origins and different ownership, can bring advantages
such as location for the firms and countries involved. 11
It is worth to mention that in brown field investments also exist joint-venture
structure, but as a joint acquisition in a form of partial fusion.
Another type of classification of FDI, based on brownfield investments, can be
made from the strategic point of view of sending countries. According to this there are
two basic types of Foreign Direct Investments:
Horizontal investment - foreign production of goods and services based on the
same profile, which the local company is performing ( the same methods of
production, with the exception of different assortment ). The reason for this
investments can be caused of customs barriers, high costs of transportation or
just to gain access to the market of host country.
Vertical investment – those investments, which process of production is divided
into parts and placed in different geographical areas, so based on geographical
diversification. However, if the company invest in another company that
produce elements, which are needed for the investor’s production in the origin
country it is called backward vertical investment, or if the host company invest
in sales network it is called forward vertical investment. The aim of this kind of
investments is the use and gain of benefits from competitive advantages of
specific country.12
In the theory this classification of vertical and horizontal investments seems to
be clear and easy, but in practice hardly ever decide only one element, when it is about
choosing the type of investment.
11 A.Kłysik-Uryszek, Efekty napływu bezpośrednich inwestycji zagranicznych dla regionu, Łódzkie
Towarzystwo Naukowe, Łódź 2011, p.177 12 M.Lewandowski, Fuzje i przejęcia jako metody wzrostu przedsiębiorstw, Wydawnictwo Akademii
Ekonomicznej w Poznaniu, Poznań 1998, p.28
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1.2 Measurement of FDI
The most popular, although not so precise, measure of Foreign Direct
Investments are annual flows between origin countries ( known as FDI outflows) and
host countries (known as FDI inflows ) registered by this countries as the balance of
payments. It consists of three components:
a) Investment in equity capital of foreign subsidiary created by the parent
company, connected with purchase of shares, capital or retrieval of resources
ex.: machinery and equipment
b) Reinvesting of profits earned by the foreign subsidiary, which was not paid to
the investor in a form of dividend, but invested in the subsidiary
c) Internal company loans, loans between the foreign subsidiary ( daughter
company ) and parent company as well as transactions connected with the
operation of internal debt
The advantage of inflows and outflows as a measure of FDI is their availability
for almost all countries and comparability. In this way we can compare size of FDI
inflowing and out flowing from each country annually.
The disadvantage is the limited cognitive value. They are limited to the foreign
capital flows between parent company and its foreign subsidiaries, and does not include
debts of subsidiaries, which owned them on the international financial markets or local
markets in the country of their existence. This means that inflows and outflows do not
fully reflect in the investments of foreign investors from subsidiaries in their countries
as well as size of their production, sales and other indicators of their activity.
Other type of measurement of FDI can be stock, presenting cumulated value of
shares, which have in possess foreign investor in the equity capital of their subsidiaries.
Also reflect in the actual net balance of debt between subsidiaries and parent
company.13
13 UNCTAD Ministerstwo Gospodarki, Bezpośrednie Inwestycje Zagraniczne na Świecie i w Polsce:
tendencje, determinanty i wpływ na gospodarkę, ONZ 202, p. 13
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1.3 Theories of FDI
The phenomenon of companies going global and investing out of the borders in
a form of FDI started in second part of XX century.14 However, we could observe
before some companies doing their first steps on the global market, locating their
production line abroad or simply in a form of import/export.
Foreign Direct Investments are the effect of companies investing abroad. The
complex of this phenomenon caused a huge interest on the topic and a wide research
deeply examined a lot of aspect concerning FDI, based on the background of different
theories. Among those theories explaining existence of FDI, there are some of them
worth mentioning:
The location theory
Eclectic paradigm
The theory of internationalization
The product life cycle theory
Below there will be presented chosen theories, which are explaining the reasons
of creating and locating Foreign Direct Investments.
The location theory is based on neoclassical theory of foreign trade. Is one of
the three most important pillars among Eclectic paradigm Dunning’s theory ( OLI ).
Those theories are looking for the factors, under which it is possible to decide if they
have a positive influence on the business or not.
Authors of the location theory examine the reasons of localization of Foreign
Direct Investments in factors which creates value of one country as a target market.
Those factors are: prices, quality and localization of factors produced; economic,
transport, institutional infrastructure; possibility of development and getting advantages
in R&D, supply and demand, determined by the market measured as quantity of
consumers and GDP, range and features of government interventionism as well as
14 W. Karaszewski, Bezpośrednie inwestycje zagraniczne w podnoszeniu konkurencyjności polskiej
gospodarki, Wydawnictwo Uniwersytetu Mikołaja Kopernika, Toruń 2005, p. 4
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psychological distance ( cultural, linguistic) separating company from potential country
of investment.15
Other popular hypothesis connected with localization of investments was
“theory of coefficient of capital investment” made by R.A Mundell, concerning
background leading to substitute foreign trade into capital exchange. It follows from
rising barriers for free flow of commodities. Mundell assumed that flow of capital
comes from countries with surplus to countries with deficit of capital. The fundamental
impulse of flow are the differences in price of capital ( where is the surplus, the price of
the capital is lower). This assumption did not find confirmation in real directions of
capital flows. In inflows of FDI excel developed countries in the world. 16
Eclectic Paradigm theory created by J.H. Dunning (1980) also known as the
OLI paradigm ( ownership-location-internalization) consisting of three theories of
foreign direct investment: advantages of ownership, the location theory and theory of
internationalization. According to Dunning’s theory, there have to be fulfilled three
conditions at the same time for Foreign Direct Investment. Company must have
ownership advantage as well as internalization advantage, while the foreign country and
market is obliged to offer a location advantage. 17
The first group of conditions mentioned above is connected strictly with
enterprise, which is going to take up investment abroad. The enterprise must have
ownership advantages to cover the cost of international activity and the advantage of
local companies, which have better knowledge of local market. Investor advantage
include: size and position of company, size of production, product or production
diversification, intangible assets such as know-how, technological level of production,
patents, trademark, management of production, organization and marketing systems,
R&D, human capital, exclusivity or privilege access to resources and sales market,
privilege as a result of economy of descent country etc.
The second group of conditions is about the higher profits, which the company
will get by internalization using mentioned above advantages. The advantage of
internalization is connected with: lower operational cost of market transactions, avoid
15 M. Wdowicka, Bezpośrednie Inwestycje Zagraniczne i Inwestycje Samorządowe w aglomeracji
Poznańskiej w okresie transformacji utrojowej, Bogucki Wydawnictwo Naukowe, Poznań 2005, p.60 16 R.A. Mundell, International Trade and Factor Mobility, American Economic Reviev 1957, p.321-335 17 J.Dunning, Trade, Location of Economic Activity, and the MNE: A Search for an Eclectic Approach,
1976 in B.Ohlin, et al. The International Allocation of Economic Activity , Macmillan, London, pp.390-
404
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costs of legal protection of property, possibility of quality control by the sales person;
control of supply, conditions of selling, technical knowledge, market area, avoidance or
use of government regulations such as customs duty, price control etc.
Localization advantage s are relevant in determining where the company
chooses to manufacture its products. This include factor prices, their quality and
efficiency, transportation and communication costs, capital flows, access to customers,
government regulations, political stability, exchange rates etc.18
The enterprise can fully engage in Foreign Direct investment, as long as posses
all of the three OLI advantages. However, to operate in a foreign market, whatever the
mode of entry, the company must have at least Ownership advantages. On below
framework we can observe the general theory of internationalization. 19
Table 1
General Theory of Internationalization (O advantages assumed)
Low Localization advantages High Localization advantages
Low Internationalization
advantages
Simple export Contractual agreements
High Internationalization
advantages
Sales subsidiary Foreign Direct Investment
Source: K.Pedersen, The Eclectic Paradigm: A New Deal? , The Aarhus School of Business, Denmark,
p. 25, http://pure.au.dk//portal/files/32323345/OLI_-_JIBE.pdf (2014.03.28)
The theory of internationalization also called as theory of transactional costs,
was introduced by R.Coase in 1937, and later extended by PJ Buckley, M.Casson and
A.M.Rugan. Internalization concerns extending the direct operations of the company,
where the enterprise is operating in more than one environment and at the same time
controlling the activities conducted by the subsidiaries. The company by increasing
involvement in the international operations will gain profits from transactions, which
can be carried at the lower costs.20 According to this theory exists imperfections on the
market, especially on the market with well developed and patented technological
18 A.A.Bevan, S.Estrin, The determinants of foreign direct investment into European transition
economies, “Journal of Comparative Economics” 32, 2004, p.776 19 K.Pedersen, The Eclectic Paradigm: A New Deal? , The Aarhus School of Business, Denmark, p. 13 20 R.E.Morgan, C.S.Katsikeas, Theories of international trade, foreign direct investment and firm
internationalization: a critique, Cardiff Business School, University of Wales, UK, p.70
12
knowledge and human capital, which incentive the companies to internalize their
business. Economic incentives of internalization depends on relation between four
groups of factors :
- specific factors for define industry ( ex. structure of external market),
- specific factors for define region ( ex. distance, cultural differences),
- specific factors for define company (ex. organizational abilities, knowledge of
marketing)
- specific factors for define nation (ex. political conditions, fiscal structure),
The company may benefit from specific advantages offered by internalization.
Product life cycle theory created by R.Veron (1966), where “the cycle flows
that: a country’s export strength builds; foreign production starts; foreign production
becomes competitive in export markets; and import competition emerges in the
country’s home market.”21 In general the product life cycle have three phases:
innovation, maturation and standardization. In the innovation phase, costs of production
are high and there exists high market risk, connected with lack possibility to introduce
the product on the market on the huge scale. In later phases of product life cycle, the
companies maintaining the already gained position on the market want to take benefits
from raising the scale of production. The demand is stabilized on the domestic market,
while it rise on the foreign markets. The competition on the market is rising what
influence the companies In the last phase , when the product is mature, the enterprises
broaden their expansion on foreign market and get additional profits form product
development on external markets. So on the last phase take place the joint of two
markets – internal and external.
On the below table there are other common theories connected with international
trade and Foreign Direct Investment. All of presented philosophies are helpful in
modeling empirics as wel as influence on the recent trends in the literature.
21 Ibid.
13
Table 2
Selected theories of international trade and foreign direct investment
Theory type Theoretical emphasis Credited writers
International trade theories
Classical trade theory Countries gain if each devotes resources
to the production of goods and services in
which it has an advantage
Ricardo (1817)
Product life cycle theory
(for international trade)
The cycle follows that: a country’s export
strength builds; foreign production starts;
foreign production becomes competitive
in export markets; and import competition
emerges in the country’s home market
Vernon (1966,
1971)
Wells (1968,
1969)
Foreign Direct Investment
Theories
Market imperfection theory The firm’s decision to invest overseas is
explained as a strategy to capitalize on
certain capabilities not shared by
competitors in foreign countries
Hymer (1970)
International production
theory
The propensity of a firm to initiate
foreign production will depend on the
specific attractions of this home country
compared with resource implications and
advantages of locating in another country
Dunning (1980)
Fayerweather
(1982)
Internationalization theory Internalization concerns extending the
direct operations of the firm and bringing
under common ownership and control the
activities conducted by intermediate
markets that link the firm to customers.
Firms will gain in creating their own
internal market such that transactions can
be carried out at the lower cost within the
company
Buckley (1982,
1988)
Buckley (1976,
1985)
Source: R.E.Morgan, C.S.Katsikeas, Theories of international trade, foreign direct investment and firm
internationalization: a critique, Cardiff Business School, University of Wales, UK, p.70
1.4 Strategies of FDI
Nowadays FDI play the crucial role in industrial development. The reasons of
their inflow differ one from another, depend on the strategy of investors. However, exist
one common feature – profits connected with investment in foreign country. Foreign
Direct Investment inflow to those branch of economy, where expecting rate of profit is
high and the production guarantee financial benefits in the long-term.
14
According to the all discussions up to now, there are two types of FDI
strategies:
Market seeking strategy – focus on maintaining or increasing market
share, by investing and locating the product in the foreign country.
Efficiency seeking strategy – connected with rationalization of
production process and improvement of competition, by using cheaper
and foreign factors of production. This strategy is used when the
conditions for the investment are better than in domestic market (ex.
cheaper energy, human resource, fiscal system) . Basically this strategy is
seeking the way to increase company’s efficiency.22
According to the analysis of this problem it can be said that in the low developed
countries, the first strategy take a huge role and is more common than the second one.
The western economists admit that the scale of the market rather encourage FDI, than
lower wages existing in the low developed countries.23 The main symptoms and phases
of the market seeking strategy are:
First gain the access and then control of local market,
Increase influence on the banking system as well as acquire of local
banks
Access to control of distributions way (investments in the chains, like
supermarkets and wholesalers)
In some literature exist the third kind of strategy : “asset-stripping strategy”.
This strategy is based on elimination of foreign investor, not to develop and gain profits,
but only to lower the competition and liquidate the production. This form of strategy is
nearly pathological situation which do not fit into the basic norms and rules of FDI, as
the part of management. The government of the host country, should take steps to
oppose this practice. 24
22 A.Budnikowski, E. Kawecka-Wyrzykowska, Miedzynarodowe stosunki gospodarcze, Wydawnictwo
PWE 2000, op cit., p.189 23 Dong-Wook Song, D. Nielsen, Foreign Direct Investment in China: The case of shipping and logistics
corporations, The Hong Kong Polytechnic University, p. 17 22W.Kraszewski, „Bezpośrednie inwestycje zagraniczne, Polska na tle świata”, UMK, Wydział nauk
Ekonomicznych i Zarządzania, Toruń 2003, s. 41-42
15
1.5 Advantages connected with Foreign Direct Investment for the host country
The literature present positive opinion about Foreign Direct Investment and its
influence on economy of the host country. It consider the profitable side of the FDI
inflow, as well as that benefits are over eventual loss.
The most know advantages derived from FDI for the host country are:
Help avoid creating capital deficit, which is common in majority low developed
countries. For countries, in which savings are not enough in order to potential
demand for investments, foreign capital can be an effective way to stimulate fast
development.
Influence on new technology transfer
Contribute to change of savings into investments of the host country
Inflow of modern management methods of production processes as well as of
human resources
Introduce on the domestic market additional elements of competition, in the
same way causing reduction of production costs and prices trough domestic
producers
Grow of employment and drop of unemployment
Substitution of investments, which normally would be made from the domestic
budget or from private capital – better for GDP
Development of R&D, better access to qualified personnel (management team
and employees) who bring with them “know-how”
Lower production costs caused by the higher scale of production
Possibility of price manipulation in trade between subsidiaries and parental
company (ex. to avoid or lower the taxes) in a form of “ transfer prices”
Foreign Direct Investment is connected with a lot of advantages, but it is worth
to know that not all kind of FDI bring improvements of macro economical indicators in
a host country.25
25 J.P.Rosa, Wpływ bezpośrednich inwestycji zagranicznych i środków finansowych Wspólnot
Europejskich na rozój Irlandii po 1stycznia 1973roku, Wyższa Szkoła Rozwoju Lokalnego , Warszawa-
Żyrardów 2004, p.37
16
Nowadays it is common knowledge that FDI have a positive influence on the
economy in developing countries. FDI is improving those countries in a form of capital,
it become important way of growing economic activity at the same time rising rate of
employment.26
1.6 Risk connected with Foreign Direct Investment for the sending country
Investing the capital investor has to take into consideration possibility of getting
lower profits from supposed ones or lack of the profits even the loss. In this case it is
called failure of investment. So they are connected with the risk of lack of gaining
expecting profit. Volume of expected profits from the investment in the most cases is
proportional to the level of risk ( investments with the higher risks are expected to be
more profitable).
The negative aspects of FDI generally appears, when the monetary politics of
host country is based on the fixed exchange rate, banking system unprepared for the
capital service and the inflow of FDI is connected with unclear rules. In a form of
foreign investments scale of the risk is higher. It is strongly connected with the lower
knowledge of the conditions in the host country, under with the business will be run and
better position of the domestic companies. So can occur lack of clarity of the law
system and organizational infrastructure for the investor. 27 In general foreign investors
expects higher profits from those which could gain in their domestic country. In other
words they expect higher profits for the risk, as the compensation equal to the scale of
“devotion of undertaking something insecure form secure”.
The risk of investments undertaken abroad include the general risk connected
with investing and the special risk as a result of business location outside the domestic
market. Investing abroad investor is deciding to undertake the general risk as well as
special one. The involvement of the assets in foreign country have to be considered with
26 A.Marino, The impast of FDI on developing countries growth: trade policy matters, National Institute
of Statistics,Italy, Universite de Nice-Sophia Antipolis, France,
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.129.768&rep=rep1&type=pdf (2014.04.04) 27 A.Stępniak, Integracja regionalna In transfer kapitału. Inwestycje bezpośrednie w aspekcie klimatu
inwestycyjnego w Unii Europejskiej, UG, Gdańsk 1996, p.148
17
the specific of the other country, for ex. universal business outlook, the way of
government activity etc.28
The special risk of investments is divided into political risk and economical risk.
In general political risk is related to the lack of information of political relations in
specific country, where derive from change those relations, and also environmental
conditions. While the economical risk is associated with changes on the market,
technological and competitive factors, which can influence on the performance of the
company, at the same time lowering the profit. 29
Entrepreneurs after considering risk connected with investing abroad, have the
possibility to check available data. It can be very helpful while decision making,
especially numbers which are showing the actual situation or the future prospects
concerning FDI.
As the example of the statistical data can be The FDI Confidence Index, based
on the primary data from the survey in which participate the world’s leading
corporations. The corporation’s which reports global revenue of more than $500million.
The survey examines the possible changes on the Foreign Direct Investments as well as
preferences of the world’s companies.
On the graph below we can observe the results from the survey for the year
2013. In consist 25 the best countries, where the United States and China are in the top
countries in the Index. Comparing to the previous years, still the influence of emerging
markets is increasing, while the United States lead for the first time since 2001. 30
28 R.Mrotzek, Bewertung direkter Auslandsinvestitionen mit Hilfe betrieblicher Investitionskalkule,
Wiesbaden 1989, p.77 29 W.Kraszewski, Bezpośrednie Inwestycje Zagraniczne, Polska na tle świata, Towarszystwo Naukowe
Organizacji i Kierownictwa, Toruń 2004, p.58 30 http://www.atkearney.com/documents/10192/1464437/Back+to+Business+-
+Optimism+Amid+Uncertainty+-+FDICI+2013.pdf/96039e18-5d34-49ca-9cec-5c1f27dc099d
(2014.03.31)
18
Figure 1
FDI Confidence Index 2013
Source: http://www.atkearney.com/documents/10192/1464437/Back+to+Business+-
+Optimism+Amid+Uncertainty+-+FDICI+2013.pdf/96039e18-5d34-49ca-9cec-5c1f27dc099d
(2014.03.31)
1.62
1.63
1.63
1.63
1.63
1.67
1.68
1.71
1.72
1.77
1.77
1.81
1.83
1.83
1.85
1.86
1.97
2.02
2.09
0 0.5 1 1.5 2 2.5
Poland
South Africa
Spain
Thailand
Switzerland
United Arab Emirates
Japan
France
Russia
Mexico
Singapore
United Kingdom
Australia
Germany
India
Canada
Brazil
China
United States
Low confidence High confidence
Values calculated on a 0 to 3 scale
19
2. FDI in China in the period 1978-2013
2.1 General macroeconomic situation of China
Since 1978, China has experienced huge changes in their economic growth.
They improved the position on the global area, political reforms as well as ‘open door’
policy were implied by the Chinese government to encourage foreign investors. Several
factors contributed to this change.
Firstly the dramatic performance under harsh central planning before 1979. After
the death of Mao Zedong in 1976 and ‘cultural revolution’ (1966-1976) China’s
economy was in the deplorable condition. In 1976 the GDP value was negative with
-1,6% and GDP per capita -3,1%. 31The politics lead by the Mao Zedong resulted in
lack of national savings, capital, development and growth. Starvation among society
was on the order of the day. At the same time took place a demographic catastrophe, a
very rapid population growth as a consequence of ‘cultural revolution’. China’s
population grew from 742 million in 1966 to 933 million in 1976, with an average
annual growth rate of 2,3%. 32 The effects of this catastrophe are noticeable nowadays
with the result of ‘one child’ politics. What is more during times of central planning
China beside difficulties inside the state also had problems with importing goods. At the
same time remaining between 10-40 years behind the other countries.
Secondly the neighborhood of the four Asian ‘tigers’ especially, Taiwan and
Hong Kong, surpassing other economies with their economical growth. In those
countries annual growth were 10%, while in China 1-2%.33 Historically, China
perceived foreign trade as a necessary evil. The lack of development and growth pushed
China to make a huge reforms. To gain capital and money to invest in development
China decided to use the FDI. First the attention was drowned to Chinese diaspore
introducing Sino-China Equity Joint Venture Law (1979). Over-seas Chinese pave the
way for other foreign investors at the same time encouraging them introducing new
policy - Foreign Capital Venture Law (1986).34 Introducing those two policies were
31 Data taken from http://stats.oecd.org/ (10.05.2014) 32 Y.Guangyuan, China’s Socialist Modernization , Foreign Languages Press, Beijing 1984, p.5-6 33 M. Dawidowski, Klimat Inwestycyjny w Chińskiej Republice Ludowej. Czynniki wpływające na napływ
Bezpośrednich Inwestycji Zagranicznych w Państwie Środka, Szanghaj 2012, p. 2-9 34 Ibid.
20
crowning achievement of all changes made in China under reforms of new politics.35 In
last 30 years China succeed in liberating trade. On the below graphs can be observed
real GDP and GDP per capita changes in years 1976-2013, as well as inflation during
period 1994-2013.
Figure 2
China’s real GDP and GDP per capita growth in period 1976-2013 (% changes)
Source: Based on http://stats.oecd.org/ (10.05.2014)
Figure 3
Yearly inflation in China during period 1994-2013
Source: Based on http://www.inflation.eu/inflation-rates/china/historic-inflation/cpi-inflat ion-china.aspx
(01.06.2014)
35 Ibid.
-4
0
4
8
12
16
1976 1981 1986 1991 1996 2001 2006 2010 2013
GDP growth
GDP growth
per capita
-5
0
5
10
15
20
25
1994 1998 2002 2006 2010 2013
21
Three decades ago, in 1978, China’s totally imports and exports were ranked on
32nd place among all countries creating 1% of global trade. After ‘open-door’ policy,
export and import were growing steadily, reaching in 2013 annual growth of 17.5% in
imports and 8.8% in exports. China now account for 7.4% of global imports and 4.4%
of global exports. 36
Figure 4
Export/Import in China in period 1990-2013 (in million $)
Source: Based on UNCTAD Statistics
2.2 Inflows and outflows of FDI in China
The rapid growth of Chinese economy and an increasing openness to the rest of
the world has been followed by the expansion of FDI into as well as from China. It is
equally important and necessary to understand why in a such short time China has
become one of the largest recipient of FDI in the world and what drivers force revive
China’s outward FDI. In below sections will be analyzed trends and patterns in Chinese
FDI outflows and inflows.
36 http://www.lse.ac.uk/ideas/publications/reports/pdf/sr012/li.pdf
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1990 1995 2000 2005 2010 2013
Export
Import
22
2.2.1 Inward FDI
China became very attractive place for foreign investors in last decades. A lot of
factors strongly influenced on the opinion of investors to perceive this country as an
opportunity to invest. As is was mentioned above huge importance had Chinese
diaspore. At the beginning China based on the strong loyalty of diaspore, who
convinced the world of stability of political system and possibility of ‘making a
business’. Over-seas Chinese investing in their country of origin and taking first steps
with FDI in China encourage foreign investors. Next step as an incentive for other
investors was creation of SEZ (Special Economic Zones) and policy introduced in 1986.
From the Chinese point of view, encouraging inflow of foreign investments meant
better opportunities to modernization of national economy. 37 Rising importance and
popularity of foreign direct investments in China contributed also to the access to high
technology and management. What is more not only FDI contributed to this, but also
the neighborhood of countries with high economy level, which introduced before the
reforms liberating trade and inflow of foreign capital encouraging foreign investors.
This highly influenced on innovation of Chinese economy ( reference to Japan, Taiwan,
Singapore).38
In years 1979-1993 average trade grow (import and export) was 16% annually,
so almost two times more than GDP growth. Export also increased astoundingly. In
1996, China became 10𝑡ℎ the biggest exporter of the world. Introduction of Foreign
Direct Investments and strong emphasis on export begun with encouraging severe
regulation and government intervention (1979-1986) and as a next step took place
creation of foreign investments areas (since 1992).39
To encourage more foreign investors to People’s Democratic Republic of China,
Chinese government introduced wide range of incentives, at the same time stimulating
inflow of Foreign Direct Investments. There were used different types of instruments to
put special emphasis on foreign investors treatment such as: reduction of taxes called as
‘tax holiday’, discounts on land taken under investment, cheap ‘free’ labor (in first
37 K. Starzyk, Zagraniczne inwestycje bezpośrednie w rozwoju gospodarczym Chin , Wydawnictwo
Naukowe Semper, Warszawa 2001, p.60 38 Market Report, Analysis and Forecast of Market Demands for Factory Automation Technology,
Product and Equipement in China , 2003, p. 34-38 39 D.Pasek, Jak zawładnąć ekonomicznie światem w 30 lat – reformy zastosowane w Chinach i socjalizm
z Chińskimi cechami, p. 102-104, http://cargo.ue.wroc.pl/publikacje/08_Pasek.pdf, 15.04.2014
23
phase were exploited slaves from labor camps) etc. Crucial were creation of Special
Enterprise Zones (SEZ) in the selected coast cities, located nearby the source of
investment capital with the Chinese origin. SEZ were the experiment of Chinese
government, created on a very small and limited area. Because of this in first phase
there were created only four of them. The main purpose was to concentrate the
inflowing investments and capital. Later on, when the model became successful, there
was adopted new model called in other words ‘budding’ – where the new zones were
created. Next step was a segregation of existing companies, with the purpose of making
more easy to maintaining the existing business and to rise the attractiveness of China for
investors.40
In the 80’s Chinese government decided to ‘open’ another cities on the East
Coast for foreign enterprises. Rising competition started the ‘race’ trough different
provinces to gain the foreign capital, at the same time fleecing and crossing the borders
of the law. Nevertheless the whole process was strongly controlled by the government.
Intensive inflow of foreign capital had positive influence on Chinese economy. China
with their comparative advantage of costs, begin to be a ‘world fabric’ and leading
world exporter. 41
The value of FDI and it growth in years 1983-93 is presented in the below table.
During this years the average inflow of FDI was less than $0.25 billion. In comparison
the total amount of realized FDI flows in China by 1991 was $4.37 billion, where in
1992 $19.2 billion and in 1993 reached $36.7 billion. Those numbers show how
changed the inflow of FDI in China during these years. It can be observe that proper
inflow and phenomenon started in 1992.
40 Ibid. 41 L.G.Branstetter, R.C.Feenstra, Trade and foreign direct investment in China: a political economy
approach, Journal of International Economics 2002, p. 330-333
24
Table 3
Realized FDI in China in years 1983-93 (billion U.S. dollars)
Year China All Developing
Countries
1983 0.64 16.29 1984 1.26 16.13 1985 1.66 12.25 1986 1.88 13.24 1987 2.31 18.33 1988 3.19 25.33 1989 3.39 31.13 1990 3.49 28.65 1991 4.37 - 1992 11.20 - 1993 25.76 -
Source: Balance of Payment Statistics Yearbook (Washington, D.C.: International Monetary Fund, 1990
and 1991), data for 1991-93 from China State Statistics Bureaus (1994)
Observing the last two years in the table, respectively, FDI achieved growth rate
of 130 percent. Later on by encouraging the wave of foreign direct investments “China
has been boasting the largest amount of FDI inflow of all developing countries, with
about 90 percent of it brought in by Greenfield investment”.42 Increasing the whole-
owned subsidiaries of foreign companies, contributed to the acceleration in inflation and
GDP growth. In years 1996-98 FDI inflows stock reached over $45 billion.
China made a radical commitment by introducing economic reform and services
liberalization. After it contributed to joining the World Trade Organization (WTO) in
2001. It promoted China on a top position of FDI destination in 2003, and triggered
movement of FDI to service industry. Also took place important improvements in
business environment for domestic as well as foreign companies. Afterwards China has
established itself as the top recipient of FDI among developing countries and the second
on the world after United States. 43
Later on in years 2003-2005, after the drop due to the Asian financial crisis,
China surged again and reached $53 billion in 2003 and $63 relatively in 2004 and
2005. In this period it can be observed remarkable upward trend, but this trend continue
until year 2010, when FDI rose to the highest amount during whole history. It reached
42 Guoqiang Long, China’s Policies on FDI: Review and Evaluation,
http://www.piie.com/publications/chapters_preview/3810/12iie3810.pdf, 15.04.2014 43 Y. Yang, China’s Integration into the World Economy; Implications for Developing Countries, IMF
Working Paper 2003, p.45-51
25
up to $125 billion. Despite the world economic crisis China with their adoption of ‘go
global’ policy contributed to a record-high 10% growth rate in period of the 1980-2010.
However, not only ‘go-global’ strategy contributed to lower affection of crisis. The
2008 Beijing Olympics games helped China to attract large amount of FDI.
In 2010 China become the third largest economy of the world, just behind
United States and Japan, concerning GDP. 44All of this changes described above about
China’s FDI -within the space of 30 years, since the first reforms until now- can be
observed below.
Figure 5
China’s Inward Flows of Foreign Direct Investment in years 1984-2014
Source: IMF, International Financial Statistics, forecasts by the Economist Intelligence Unit, 2013
Despite the rough history, China became one of the biggest and most powerful
country on the world, and decision undertaken in this country have not only the regional
importance, but also the global one. 45 During last 30 years became the third most
influential economy in regard of trade and development. Good comparison can be made
between United States and China by observing GDP, where to the previous year in 2013
the percentage growth in China were 7,7% while in United States only 1,9%. It is worth
44 Chen, Chung and Chang, Lawrence and Zhang, Yimin, The Role of Foreign Direct Investment in
China’s Post-1978 Economic Development, 1995 World Development, Vol. 23, p. 681-693 45 S. Panitchpakdi, M. L. Clifford, China and the WTO Changing China, Changing World Trade, John
Wiley & Sons 2002, p.56-64
0
20
40
60
80
100
120
140
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Billions of US $
26
to mention that both countries, United States and China, have comparable value of GDP
so can be compiled together.46
Chinese inward FDI is mainly sourced by Asian economies. According to the
data from 2010, trough the most important investors was Hong Kong, with the shares of
41% in creating Foreign Direct Investments, 7% from Japan, 5% from Taiwan, 4% from
the Republic of Korea and 4% from Singapore. The European Union and the United
reached 7%, where major countries from EU were United Kingdom and Germany. We
can mention that Taiwan and Hong Kong is consider by China as their territory, so the
FDI value of 46% was made within the framework of over-seas Chinese and diaspore.
Also four ASEAN countries (Thailand, Philippines, Malaysia, Indonesia) since 1990s
increased their presence in China. 47
Analyzing the structure of locating FDI in China can be observed that investors
concentrate mostly on industry sector 51%, for services is 34% while agriculture only
15%. 48 China is the only one great economy where services sectors is less important
than the industry. While looking from the historical point of view, this structure was
different in 80’s of XX century, where the majority were investments in agriculture and
later in industry and services. Right now the eastern part of China is the most popular
of foreign investments. In general it is caused of cheaper labor force and actual politics
of China to support and industrialize backward regions.49
2.2.2 Outward FDI
Although Chinese outward FDI is still lower comparing to its inward FDI,
China’s overseas enterprises in recent years have been gaining importance on the global
market, as a new source of international capital. In past two decades it increased by
almost 300% ( Figure 4). In 2007 outward flow investment reached $ 26,5 billion while
in 2008 during the world crisis, when world economies were suffering the significant
drop in FDI, China doubled its outward flow investments and reached $ 55,9 billion.50
46 Ibid. 47 Y. Yang, China’s Integration into the World Economy; Implications for Developing Countries, IMF
Working Paper 2003, p.56-60 48 Ministry of Commerce (MOFCOM), China, www.fdi.gov.cn 49 M. Dawidowski, Klimat Inwestycyjny w Chińskiej Republice Ludowej. Czynniki wpływające na napływ
Bezpośrednich Inwestycji Zagranicznych w Państwie Środka, Szanghaj 2012, p. 10-22 50 Lina Lian, Overview of outward FDI Flows of China, School of Economics, Northwest University for
Nationalities in Lanzhou, China 2011, p. 103-106
27
The phenomenon of Chinese rise of investments during the world crisis in 2008 is
connected with mainly two factors. Firstly the incentive measures and secondly by
creation of SWFs (Sovereign Wealth Fund), which are the National Financial Fund used
as a main instrument to OFDI. During the crisis took place the downturn of western
wealth, by diminished the assets, and at the same time dropped the stock price. In a
result it gave China the opportunity to profitable direct investments. It strengthen China
as a global player in the world economy.51 In the other words rapid growth is strongly
connected with intensive integration with the world economy by increasing foreign
investment connections with other countries. Based on results of UNCTAD in 2012
China’s outward FDI reached $84,2 billion and come in the third position as a largest
one, with the leading economies of United States and Japan on top positions.
Figure 6
China’s Outward Flows of Foreign Direct Investment in years 2002-2012
Source: UNCTAD, Annex Table 02 - FDI outflows, by region and economy in 1990-2012, publication
26 Jun 2013
Main motives of Chinese expansion on the global markets can be:52
51 http://www.vub.ac.be/biccs/site/assets/files/apapers/Asia%20papers/20100919%20-
%20Van%20Den%20Bulcke%20&%20De%20Beule.pdf , (14.05.2014) 52 A.Gradziuk , J.Szczudlik-Tatar ,Perspektywy rozwoju współpracy gospodarczej Polski z Chińską
Republiką Ludową, Warszawa 2012, s.10-22
0
10
20
30
40
50
60
70
80
90
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Billions of US $
28
Increase of competence on the domestic market
Escape from exporting barriers
Transfer of know-how
Improvement of management
The scope of Chinese investments in different sectors is expanding. Mainly are
business services, mining, finance, wholesale and transport. In 2011 most of FDI
outward investments were located in developing regions. Beside Asia which is the top
recipient region of Chinese FDI, were also Latin America, Europe, North America,
Africa and Oceania. It is estimated that by 2011 Latin America was the second largest
recipient of Chinese OFDI right after Hong Kong, with 13% of investments located in
LA and 74% in Asia. In 2011 outflows to Europe, Africa and Oceania were $8.25
billion, $ 3.17 and $ 3.32 billion, up by 22,1%, 50.4% and 75,6% year on year
respectively.53
In the same year in the top 10 destinations of China’s outward FDI were Hong
Kong ($35 billion), British Virgin Islands ($6.2billion), Cayman Islands ($4,9billion),
France ($3.5billion), Singapore ($3.3billion), Australia ($3.2billion), United States
($1.8), United Kingdom($1.4billion), Luxemburg ($1.3billion) and Sudan($912
million). In 2012 Hong Kong remain the largest recipient, while US became the second
largest OFDI recipient. The investments in infrastructure and natural resources were the
dominant.
Chinese government introduced various five-year plans to determine different
targets to achieve. Recently take place the five-year plan ( the 12th in raw), which cover
the period 2011-2015 and continue with the strong concentration on ‘going global’
strategy. In previous years there were established goals like achieve balance between
inward and outward Foreign Direct Investments, taking into consideration progress in
OFDI which will reach the level of IFDI by 2015. The main steps are taken to promote
outward investments. In article publicized by Xinhua News Agency, Minister of
Commerce Chen Deming stated that the plan of balancing OFDI and IFDI is steadily to
reach in five year plan. 54 Some of the targets made in the five-year plan (2011-2015)
were:
53 TUSIAD, China Business Insight, China Outbound Direct Investment, China February 2013,
http://www.tusiad.org/__rsc/shared/file/ChinaBusinessInsight-February-2013.pdf, 15.04.2014 54 Xinhua News Agency report from 7 March 2011, www.news.cn , 15.04.2014
29
By the end of 2015, Chinese outward FDI will reach $150billion and will
increase annually by 17%
550,000 Chinese people will go to work overseas during 2012 (according to
USA China Daily 850,000 Chinese citizens went abroad), with the total number
over million by 2015 55
On below table present some chosen policy development in China aiming
outward FDI, since 1978 -the beginning of reforms.
Table 4
Chosen China’s Outward FDI Policy Development
Tight Controls
(1979-1983)
Restrictive attitude toward OFDI due to inexperience and ideological
skepticism, low foreign exchange reserves. Only special designer
corporation could apply for OFDI project.
Active encouragement
(1992-1996)
Economic reforms and global integration led to a policy of more attractive
encouragement of OFDI. Goal: to increase Chinese businesses
competitiveness.
‘Go- out policy’
(2000-2006)
WTO accession and growing competition in domestic market influenced
higher encouraging OFDI and implemented supportive package aiming
Chinese firms to ‘go abroad’
Source: BBVA Research, Economic watch: China’s outward FDI research new highs on strong
growth in 2012-13,Working Paper Number PB09-14, Peterson Institute of International Economics
and BBVA Research
Nowadays China is considered as a one of the most powerful economy on the
world, right behind the United States.56 In the last decade can be observed very
dynamical growth of Chinese investments around the whole world. It is a first
phenomenon on such a huge scale in the whole history. In 2001 the amount of Chinese
OFDI stock was equal to $6,9 billion, while in 2011 it reached $65 billion.57 So during
10 years OFDI in China rise almost 10 times. Rapidly reaching the high position and
becoming the global player, China take the advantage of the world crisis and hit the
competition by entering the markets in developing countries. There are two main
principles driving the decision making of Chinese government about locating
55 APCO worldwide, China’s 12th Five-year plan: How it actually works and what’s I store for the next
five years, 10 December 2010, http://www.export.gov.il/UploadFiles/03_2012/Chinas12thFive-
YearPlan.pdf, p. 1-7, 15.04.2014 56 J. Kubicka, Rozwój gospodarczy Chin w dobie globalizacji – Wybrane aspekty, wyd. AE im. K.
Adamieckiego, Katowice 2010, p.58-62 57 Data taken from UNCTAD
30
investments, first – invest where western companies are unwilling to invest and second
– the first investor you are, the first you will gain the profit.
Latin America right now is the second highest recipient of Chinese OFDI after
Hong Kong. Between 2000 and 2009 Chinese investments in LA increased from $10
billion to $130, where the top nations where Brazil, Mexico, Chile, Venezuela and
Argentina58. By 2009 China become the first largest trading partner registering $56
billion in OFDI and at the same time overtook the United States. China mostly invest in
raw materials and commodities, but at the same time provide a debt financing for LA. In
2010 China offered more loans to LA than World Bank and the Inter-America
Development Bank. Other positive side of Chinese OFDI presence in Latin America is a
diversified source of financing. During few years after world crisis in 2008, LA suffer
from stagnation from its western investors, while China contributed to impressive
growth rates level ( every 1% of Chinese growth = 1,2% of Latin America growth). The
presence of Chinese investors improved the development in some regions, by
supporting companies that support natural resources as well as infrastructure
improvement.59
Another region supported by Chinese investors is Africa, where in the last
decade Chinese investments rose to over $106 billion. China mostly export the natural
resources 60( oil and gas), which are essentially to drive their rapid and steady growing
economy. At the same time Africa gain a lot of profits from Chinese investors such as
improvement in infrastructure, technology, agriculture and get qualified labor force. The
best period was between 2005-2009 when was recorded the highest Chinese outward
investments. Later on as a consequence of unstable situation and politics in North
Africa China lower their appearance and was noted a drop in OFDI in those regions.
Recently they increased again their outward investments which are right now on the
same level as in Latin America. China is second the most investor in this region, right
after United States. They maintain mutual profits politics, where both Africa and China
are on the win-win position. 61
58 http://in.news.yahoo.com/chinas-trade-latin-america-grew-2011-050334275.html ( 20.05.2014) 59http://www.eclac.cl/publicaciones/xml/0/43290/Chapter_III._Direct_investment_by_China_in_Latin_A
merica_and_the_Caribbean.pdf (20.05.2014) 60 http://www.bingham.com/Publications/Files/2012/01/Chinas-Investments-in-Lat in-America-Themes-
Challenges-and-Future-Trends (20.05.2014) 61 K.Kobylinski, Chinese Investment in Africa: Checking the Facts and Figures, Association for
International Affairs, 2013 , p.10-50
31
By entering and investing in developing countries , China want to demonstrate
on their own example that economic growth can be made rapidly and effectively no
matter of type of government, democratic or non-democratic country. The instruments
needed to ‘win’ this game is in government hands to play well their political cards in a
way of going global policies, opening-doors and encourage foreign investors.
2.3 FDI in China from international perspective
It is hard to discuss and say about China as a one of the global leader without
comparing its economy to others. As a country of billionth population and almost the
same area as Europe, it is problematic to measure FDI of China without look on
performance of other economies. Also from level of development point of view, China
as a still developing country receive different amounts of IFDI and OFDI as developed
countries, but as a huge country it is difficult to say whether it is performing well or not
without comparing it to GDP. Below there are presented two figures presenting
comparison of FDI as a percentage of GDP between China, United States and European
Union. Taking a closer look on it will show the phenomenon of China as a recipient of
FDI.
Figure 7
Foreign Direct Investment Inflows as a percentage of GDP
Source: http://www.oecd.org/investment/FDI%20in%20figures.pdf
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2008 2009 2010 2011 2012
China
United States
EU
32
Figure 8
Foreign Direct Investment Outflows as a percentage of GDP
Source: http://www.oecd.org/investment/FDI%20in%20figures.pdf
According to the above figures in 2012 in China the FDI inflow constituted
3,1% , which is bigger than in United States and EU (1,1% and2% respectively). In the
same year the FDI outflows in China were lower than in United States and EU ( 0,8%,
2,2% ,2,5% respectively). It is easy to observe the importance and huge scale of inward
FDI in China, while the outward FDI is still much more lower comparing to United
States and Europe,
Looking on the FDI from the economical point of view can be observed
relationship between inflows/outflows and economic development. However, in
different literature are presented wildly divergent opinions, weather economic
development influence FDI or no. Taking into consideration possibility of existing
relations, countries can be divided into four groups from the development perspective
concerning GDP and GNP. First group are the countries with a very low GDP and with
a lack of attractiveness for investment. Second group are the developing countries,
where GDP>GNP. Those have the attractiveness for the investments, FDI inflow are
higher than FDI outflow and the country is a recipient of capital. To this group we can
qualify for ex. China and India. Third group are the countries where GDP=GNP, in this
situation FDI inflows are equal to FDI outflows. Those situation took place in USA 5
years ago. The last, fourth group are developed countries with GDP<GNP, at the same
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
5.5
6
2008 2009 2010 2011 2012
China
United States
EU
33
time FDI inflows are lower than FDI outflows. This group are the exporters of capital
and goods and they are basically subsidize world in capital, ex. Japan, Germany. 62
China performance in relation between GDP/GNP in recent five years change
rapidly. It can be observed growing tendency with GNP with approaching GDP.
According to the 5 year plan (2010-2015) Chinese government with their steady rapid
growth expect that GNP will surpass the GDP and at the same time OFDI will reach the
level of IFDI.63
62 http://gospodarkanarodowa.sgh.waw.pl/p/gospodarka_narodowa_2010_04_05.pdf (15.05.2014) p.92 63 Xinhua News Agency report from 7 March 2011, www.news.cn , 18.05.2014
34
3. The impact of inward and outward FDI on Chinese economy and prospects
In recent decades, since 1978 after implementation of reforms and the open-door
policy, Chinese economy became the fastest growing in the world. FDI played the
mayor role in transforming the Chinese economy. The real rate of GDP growth was
equal to 10%, what means that in last 30 years the real value increased 20 times (in
USD). Never before any country increased their GDP and GNP in such a fast period, in
such a degree. In recent global economy the success of China is the unique one,
especially that concern the country where leave more than 1,3 billion people.
Established development model by Chinese contributed to the transformation from
poor, agricultural country ( 80% of people before 1978) to the second most powerful in
the world.64 At the same time 400mln people get out from poverty and for the majority
improved living conditions. Beside the stabile politics and specific goals to reach in a
form of ‘five year plans’, going global strategy contributed to rapid development. All of
the changes and reforms which took place in Chinese economy, were strongly
connected with FDI. It can be almost said that nowadays powerful China is created by
implementation of Foreign Direct Investments and maintenance of good relationship
with other countries.65
3.1 Main effects of FDI
According to the OECD one of the most significant positive effect of FDI on
Chinese economy were employment opportunities.66 In developing countries, where
capital is relatively insufficient but labor is abundant, the creation of employment is
quite hard and the best instrument in this cases is FDI. The employment in FDI firms in
China increased significantly. To compare the data in 1990 foreign firms employed 4.80
million workers, it is 0.74% of China’s total employment, while in 1998 they employed
64http://www.iprcc.org.cn/userfiles/file/2012_7%20%E4%B8%AD%E9%9D%9E%E4%BC%9A%E8%A
E%AE%E6%80%BB%E6%8A%A5%E5%91%8A-EN-Final-2.pdf , p.4-5, (26.05.2014) 65 65 E. Ferdzyn, Wpływ bezpośrednich inwestycji zagranicznych na gospodarkę Chin , Ekonomia
Międzynarodowa, Studenckie Koło Naukowe, Łódź 2011, p.10-30 66 OECD working papers, Main determinants and impacts of Foreign Direct Investment on China’s
Economy, 2000, p.27
35
18.39 million – 2.63%, so four times more. 67 The demand for the qualified labor force,
especially among foreign companies, influence on the improvement of competitiveness
of employees. Workers improve their qualifications, government invest in education
and the high wages in foreign enterprises effect the growth of average remuneration on
the similar positions. FDI also intensify disproportion in remuneration on domestic
market: they inflow on high wages only among qualified labor force, it cause inequality
division of income trough Chinese citizens. Currently the problem concern mostly
disproportions between urbanized areas and villages, east and west part of country.
Foreign Direct Investment also contributed to rise of productivity factor and
countries share as well as transfer of intangible assets such as information and
technology, marketing and managerial skills, new organizational structures , systems
and access to final goods markets.
On the below figure is presented share of foreign enterprises in whole export in
China. In 2002 it excided 50% remaining on the similar level until 2010. It shows strict
connections between FDI inflow and Chinese trade structure as well as export
possibilities of this country.
Figure 9
Share of foreign enterprises in total export of China (1986-2010)
Source: Based on data from: www.fdi.gov.cn (26.05.2014)
67S.Karlsson, N.Lundin, F.Sjoholm, P.He, FDI and Job Creation in China, Research Institute of
Industrial Economics, Stockholm 2007 p.
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
36
Enterprises with foreign capital, especially in 2008, had a huge share in
industrial production, generating 30% of total industrial product.68 Taking into
consideration importance of those enterprises in China’s export (Figure 7), can be said
that partly they influenced changes in sectors of export. In 1990 China exported huge
amount of agricultural product, natural resources and fuels, which then created 25,6% of
national export. In 2007 share of industrial product reach amount of 93% of total export,
where export of natural origin product decrease to 6,8%. In 2011 China, approaching
developed economies, export more industrial product with higher level of technological
development.
Table 5
Share of industrial product manufacture considered by form of enterprise
Form of enterprise 1998 2008
Government owned and controlled enterprises 49,6% 38%
Joint-stock company 6,4% 42,1%
Enterprises with foreign capital 24,7% 30,8%
Collective enterprises 19,6% 5,3%
Source: T. Białowąs, Wpływ zagranicznych inwestycji bezpośrednich na wzrost gospodarczy na
przykładzie Chin, ZGŚiIE, Instytut Ekonomii, p.8
Foreign enterprises are the serious competition for the local entrepreneurs, who
have to improve their efficiency and effectiveness, quality of the products and
technology of production. It contributed to growth of competitiveness of ‘made in
China’ products on the global market. They become more and more technological
developed. As an effect in 2005 export of hi-tech products reached $214 billion (43,2%
from them were under the ownership of foreign enterprises).69
Since the middle of 90’s foreign investors beside opening hi-tech production
plants also build R&D units. According to China government politics, companies
created in areas of R&D and hi-tech gained fully access to the domestic market, tax
reliefs and preferential law to export and import. At the beginning most of the
investments were located in Beijing and Shanghai (coming from dynamically
developing IT sector in USA). After China accession to WTO increased concentration
of R&D sector on the domestic market. Enterprises were opening research and 68 Ibid. 69 E. Ferdzyn, Wpływ bezpośrednich inwestycji zagranicznych na gospodarkę Chin , Ekonomia
Międzynarodowa, Studenckie Koło Naukowe, Łódź 2011, p.40-51
37
development centers working out the innovative products with destiny to reach later on
the global market (global R&D), not like before – only the regional market. 70 Until
2005 about 700 foreign enterprises owned their private R&D centers, while the largest
companies on the world within the hi-tech area, invested more than $7,7 billion.71 The
most important clusters of R&D centers (beside Beijing and Shanghai) are: Xian,
Chengdu, Nanjing, Qingdao, all of them located in the eastern part of China. Below
table present information about some of R&D centers located in China.
Table 6
Chosen R&D centers in China of foreign corporations
Company Branch R&D center
General Electrics Shanghai Shanghai Technology Center (CTC), Zhanjiang Hi-Tech Park, creating innovative products, supplying GE branches on the whole world
Microsoft Beijing Microsoft Research Asia, working out the state-of-the-art and the newest technology computers
Motorola Beijing Motorola China Research Institute, internal and external cooperation, improvement of telecommunications industry
Source: GE Global Research, About This Location, ge.geglobalresearch.com (27.05.2014); Microsoft
Research Asia, www.research.microsoft.com (27.05.2014); Motorola China Research and Development
Institute, www.motorola.com.cn (27.05.2014)
The biggest amount of Research and development centers were created among
electronics industry, telecommunication industry and software, but also increase
significance of pharmaceutical or chemical centers. Huge activity of multinational
companies on the Chinese market contributed to diffusion of technology in direction to
domestic companies. However, not all of the enterprises had ability to absorb
innovation (for ex. labor market). Thanks to the national politics, dependent on the
warrant of entering foreign enterprises into joint ventures with Chinese companies and
creation of large amount of projects and long-term strategies. According to the form of
FDI, especially in innovative areas, strengthen competitiveness of Chinese economy
considering high-tech, and later on also influenced economical growth of China.
National enterprises, for ex. Lenovo, intercepting and improving products invented by
the foreign companies, right now are capable to produce independently high quality and
70 J. Kubicka, Rozwój gospodarczy Chin w dobie globalizacji – Wybrane aspekty, wyd. AE im. K.
Adamieckiego, Katowice 2010, p.111-112 71 Verico, Nowa strategia Chin wobec firm zagranicznych, www.chiny.verico.pl (27.05.2014)
38
technology products. A lot of Western corporations also supported Chinese universities
and national R&D centers. For example Motorola is cooperating with Zhejiang
University, thanks to this China slowly change from economy based on low cost of
production and work to economy based on hi technologies. 72 On the other side level of
technology still make a barrier for many of Chinese companies. As the effect, most of
the export are made by the foreign investors, and resource of technological and
economical development of China is located in ‘foreign forces’. As the answer for the
problem, Chinese government introduced National Knowledge and Technology
Development Strategy (2006-2020). Government realized that beside accumulation of
foreign capital, to the balanced economic development innovation is essential. Focused
on reconstruction of independence of Chinese companies towards foreign ones and on
supporting their innovative projects.73
Fast economical development cause the higher need for resources. China with
their outstanding economical progress became the biggest consumer on the world of a
major of resources. Limited own resources, caused that huge part of them are imported.
However, they have monopoly for infrequent metals, with 90% of global resources used
mainly to production hi-tech electronics.74 China became the biggest world importer of
cotton, soya and second in size of petroleum import, copper and zinc. In years 1997-
2005 the import of petroleum rose 24,4%, copper 18,4% and soya 20,5% yearly. By
2016, it is estimated that consumption of different types of resources will rise by 10-
25% yearly. The share of China in global demand for resources exceed 1/3, and their
demand in a huge part decide about prices on the market. 75 China’s demand in last 30
years contributed to the higher profits in other countries from export of resources, at the
same time improving their balance of payments.
In the last decade China created the system of strong connections and
economical correlations with other countries, to provide stable delivery of the most
important resources essential to maintain future dynamical development. To provide
stable delivery China signed long- term agreements with African countries, Latin
America and Asia concerning output of natural resources. Chinese investments and
support in country development are very appreciated by the recipients- host countries.
72 W.Hrin, Cudzoziemcy Niepożądani, Managermagazine no.1 73 E. Ferdzyn, Wpływ bezpośrednich inwestycji zagranicznych na gospodarkę Chin , Ekonomia
Międzynarodowa, Studenckie Koło Naukowe, Łódź 2011, p.40-51 74 B.Liberska, Perspektywy rozwojowe Chińskiej gospodarki do 2050, Instytut Nauk Ekonomicznych PAN
2010, p. 347 75 Ibid.
39
The inflow of Chinese FDI to Africa in 2009 exceed 9,3mld USD and China became the
largest trade partner of Africa surpassing UE and USA. In the last decade, mutual
exchange reached more than 120 billion USD, it risen 10 times. Relations between
China and Africa bring mutual profits for both countries.76
Since 2001 also begun revival in relationships between Latin America and
China. Later on China also became the main trade partner with Brazil, Argentina, Chile
surpassing again UE and USA. Chinese companies started cooperation on huge scale
with local manufacturers, at the same time becoming for some of them the most
important investor. The cooperation with this region China called as strategic
partnership - LA is the second largest recipient of Chinese OFDI. Right now during
crisis, China is the unique opportunity for Latin America, while United States have very
weak economic growth.77
Change of the development model to more resource economic one, in a future
can lower present request in China for some resources in industry. However, movement
of millions of people into new build cities are creating additional demand for energy
and other resources.
In recent years China decided to move part of production to neighboring
countries (Vietnam, Cambodia, Bangladesh, Indonesia) and to deploy regional supplier
chain to rise the competitiveness. Partly they follow Asiatic model of industrial
development, called as “Flying geese”.78 Thanks to this investments, trade and
industrial cooperation between countries of South-East Asia developed dynamically. In
years 2007-2008 about 2/3 Chinese foreign investments were located in those regions.
China became binding investor for many countries of region. 79
Beside the positive effects of FDI there are also the negative ones, with each
China have to struggle. First one which can be mention are disproportions between
regions, between cities and villages and social groups. Creation of SEZs caused that
foreign capital was concentrating basically in some parts of China, so some regions
were developing faster than others. With additional capital, technology and investments
provided by foreign enterprises those regions had better economic growth, while others
were exposed to poverty. FDI distribution in country is not equal, where always
76 Ibid. 77 https://www.iamericas.org/en/recent-articles-sp-619120327/1909-chinas-role-as-strategic-economic-
partner-vital-to-latin-americas-future-says-barcena-of-eclac 78 http://www.dijtokyo.org/doc/dij-jb14-Schroeppel-Nakajima.pdf 79 S.Halper, The Beijing Consensus: How China’s Authoritarian Model will Dominate 21 st Century, Basic
Books, New York 2010, p.233
40
depends on location factors, this always cause regional inequality and increase the
growth gap among regions. About social disproportion mainly it is caused by wage
inequality and wage gap between skilled and unskilled workers. From the study made
by Zhao it is found that less educated and qualified workers earn significantly less in
foreign companies than in state-owned, while qualified workers earn more in foreign
companies than in state-owned ones.80 Again this wages gap is between inland citizens
and costal. On below map can be observed income inequality between regions.
Figure 10
China regional income inequality
Source: http://www.theatlantic.com/china/archive/2013/09/mapping-chinas-income-inequality/279637/
(05.06.2014)
Other important negative impact reveal in crowding-out effect, especially during
period 1992-2010. The effect of crowding out domestic investments is seen in the East
and Middle region of China. Recently and during mentioned period many of domestic
enterprises faced strong competition from foreign enterprises. Taking care about
problem China is actively devising polices to effectively balance the growth, taking into
80 Y. Zhao, “Foreign Direct Investment and Relative Wages: The Case of China,”
China Economic Review 2001, 40-57
41
consideration already achieved expansion as well as the avoidance of crowding out
effect.
With dynamical economic growth and huge inflow of FDI China rapidly became
the ‘world factory’. This contributed to serious environmental especially to air pollution
and water pollution problems. The majority of industrial emissions are located in urban
areas
3.2 Forecast of economic development in China by 2050
Impressing economic success and rise of position of China on global area arouse
the question, if it is possible to continue this growth in future decades and what will be a
position of China in 2050. A lot of researcher have the opinion that if China will
continue with an average growth on the level much more higher than Western countries,
in the next few decades will become the most powerful country in the world. In 2010
China surpass Japan and become the second most powerful country, which Japan was
since 1968. In 2009 became the biggest world exporter, surpassing Germany. What is
more China came on the leader position in industrial production, inter alia in car
production surpassing United States.81
Analysis concerning perspective of Chinese economy development, carried by
Goldman Sachs since 2003 (within the scope of BRIC group), shows that much more
faster, than it was supposed, China surpass with their GDP other developed countries. It
was predicted (data from 2006) that by 2030 GDP will be equal to $26,820 billion and
GDP of USA – $22,810 billion. The main economist from Goldman Sachs – Jim
O’Neill- forecasts that in 2027 China will become the most powerful country in the
world. The global crisis caused that dynamically developing Chinese economy by 2020
have a chance to become the leader country. GDP of China based on purchasing power
parity in 2020 can be close to the USA GDP. Whereas in 2050 Chinese GDP according
to ppp is prospected to be two times higher than USA GDP. The GDP per capita in
2050 in China will be $67 000, while in USA $ 95 000. It means that recent gulf
between China and USA ( nowadays GDP per capita based on ppp is 10 times higher in
81 http://antonioguilherme.web.br.com/artigos/Brics.pdf
42
USA than in China) will decrease considerably. The forecast concerning GDP per capita
shows that, while in 2006 in USA GDP was 20 times higher than in China, in 2050 it
will be only 1,7 times higher.82
Other forecast paper, made by Stancil and Dadush from Carnegie Endowment
for International Peace, presented the prospect changes in world economy in years
2009-2050. Analyzing GDP growth and forecasts of IMF based on Cob-Douglas
function, it is estimated that economical growth of China in 2009-2050 should be on
average 5,56% . Only one country – India – will have higher ( 6,19%) growth than
China. The economic forecast predict that at the same time, high developed countries
like UE and USA will have a growth on average 2,3%. It result, that in 2023 China
considering GDP will overtake USA and become the leader country. In 2050 real GDP
will be $46 265 billion, where in USA - $38 646. Currently China become the second
world powerful economy, but still their GDP is 4 times lower to the USA GDP.
However, in 2050 Chinese economy will be 20% higher to USA, and calculating in
USD according to ppp will be 88% higher.83
Robert Fogel from Chicago University, laureate Nobel Prize, predict that in 2040
Chinese GNP (with current growth) can reach $123 trillion, so 40% of world income,
where USA GNP 14% of world GDP and EU only reach 5% of world GDP. Those
forecast bring a lot of controversial. Fogel pointed on five basic factors, which in his
opinion allow a dynamical growth of Chinese economy. As a first factor he mention
fluctuation in education in few years on the level of tertiary education reaching the rate
of 50% and 100% in higher education. The second factor is potential, which lie in low
developed agricultural sector (55% of population leave in villages – more than 700
million people). The agricultural development program can contribute to more than 3%
growth of GDP. Third factor is fast growing services sector ( recently create only 35%
of GDP). The fourth factor is rationality and effectiveness of Chinese system of
development planning and openness on new ideas at the same time introducing
corrections of previous programs. The last, the fifth factor is hope connected with
changing the model of development in direction to supporting growth of Chinese
economy. For some people, predictions and opinion of Fogel are too optimis tic. 84
82 Goldman Sachs Paper, Dreaming with BRICs: The Path to 2050 , 2010 p .1-23 83 U.Dadush, B.Stancil, The G-20 in 2050, Carnegie Endowment for International
Peace, “International Economic Bulletin”, November 2009 84 R.Fogel, China Estimated Economy by the Year 2040 , Foreign Policy, January 2010
43
Analytics from Pricewatherhouse Coopers presented forecast in 2006, 2008 and
2010, which shows huge shifts in structure of global economy in next decades.
According to their predictions from 2008, size of Chinese GDP in 2050 will be 94% of
USA GDP, where GDP based on ppp will be 143% of USA GDP. Analytics forecast,
that economical growth in China in years 2005-2050 will be yearly 6,3%, while in USA
2,4%. The GDP per capital based on ppp in 2009 was estimated on $8 888billion, while
in USA $14 256 billion (so 60% higher than in China), and that by 2050 will rise to
$59 475 billion in China and $37 876 in USA (what means that in China it will be 57%
higher). The experts thinks that around 2020 China will surpass USA and from GDP
based on ppp would become the biggest economy on the world.85
Presented above forecasts shows growth of Chinese economy in future decades,
even if the growth would be lower from this current one. Faster than it was estimated,
China surpass other countries and in a lot of areas come on a leader position.
Chinese development strategy and goals stays unchanged. Firstly, maintenance of stable
and high GDP and GNP growth. Secondly, improvement of leaving and getting out
people from poverty, transfer them from villages to cities. Thirdly, political and social
stability.
85 J.Hawksworth, A.Tiwari , The World in 2050. The Accelerating Shift of Global
Economic Power: Challenges and Opportunities, London 2010, http://www.pwc.com/gx/
en/world-2050/the-accelerating-shift-of-global-economic-power.jhtml
44
Conclusion
Economic growth of China demonstrates incredible ability of ruling party in
taking an advantage of possibilities gained to develop the country. Experimental
reforms liberating domestic market, at the same time being under governmental control,
turned out to be a phenomenal success. Long- lasting Foreign Direct Investments in
Chinese economy significantly influenced form of investment flows as well as foreign
trade exchange on the global scale. In 2010 China was second world economy
according to FDI inflows and fifth concerning Chinese investments abroad. 86However,
it is not a coincidence. From the beginning economic reforms were supported by the
well-thought-out politics toward FDI, often connected with national development
strategy (five years plans). Beside creation of proper backroom investments,
government imposed a lot of restrictions and conditions on foreign investors.
Consequently government hold fully control of FDI inflows and its influence on the
economy. China by focusing mostly on greenfield investments (in laborious industry as
well as where were required high qualified labor force) had an effect on transformations
of national production structure. Without doubts Foreign Direct Investments became
one of the most source of China’s success on the global market. As an example 60%
shares of Chinese export become from foreign investors, which 43% are hi-tech
products. 87Still growing share of service sector in production structure, bring China
closer to the developed countries. FDI contributed also to the labor market, effecting on
rise of remuneration on high qualified positions as well as creating new job places.
Demand on high qualified personnel among foreign enterprises in China still rise, at the
same time influencing and improving the value of Chinese labor force.
Beside positive effects of FDI there are also the negative ones which had their
impact on China. Currently China is struggling with disproportion between regions, as a
consequence of different distribution of FDI among country, crowding-out effect and a
serious ecological problems affecting society and economy.
World have to more and more reckon with powerful Chinese economy.
Especially nowadays during hard times and world crisis, while most of the countries
wrestle with huge debt and unemployment, Chinese economy can develop dynamically.
86 Chen, Chung and Chang, Lawrence and Zhang, Yimin, The Role of Foreign Direct Investment in
China’s Post-1978 Economic Development, 1995 World Development, Vol. 23, p. 681-693 87http://www.ncaer.org/downloads/MediaClips/Press/GNatraj&AnjaliTandonChina%20ChangingStructur
e.pdf
45
As a new world power, China want to create the best conditions to realize established
goals, at the same time supporting growth aspiration of developing countries. China
with the huge market and still rising demand of millions of new consumers, should not
be seen as a threat, but a chance for a lot of the countries to rise their export and satisfy
this demand. In upcoming decades Chinese demand can become the driven force of
world economy development. Also rising role of China in international organizations
should be favourable to resolve a lot o global problems.
However, only the economical growth will not assure China steady and constant
growth, considering numerous population China still remain in a group of countries
with low GDP per capita. According to the Chinese and international strategists,
average of level of development will be possible to reach in 2050. Before China have to
overcome inside defects of economy and structural flaws, as well as manage with other
important problems such as shortage of natural resources, environmental pollution, lack
of balance between economical growth and social development, low level and quality of
education, irregular distribution of population, disproportion between regions and social
groups, migrations and obsolescence of society.88
Without any doubts can be said that this study meet with the hypothesis and
fulfill set goals. The main purpose was to present FDI as a main source of Chinese
success and its huge contribution to economic growth and development. According to
the presented argumentation and study, can be drawn a conclusion that FDI had its
important role in influencing Chinese economy at the same time being one of the main
driving force of huge growth and development.
88 http://www2.almamater.uj.edu.pl/102/23.pdf (05.06.2014)
46
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List of tables
List of figures
Figure 1: FDI Confidence Index 2013……………………………………………….....18
Figure 2: China’s real GDP and GDP per capita growth in period 1976-2013
(% changes)…………………………………………...……………….……………......20
Figure 3: Yearly inflation in China during period 1994-2013……….....…….........…...20
Figure 4: Export/Import in China in period 1990-2013 (in million $)…….…....……....21
Figure 5: China’s Inward Flows of Foreign Direct Investment in years 1984-2014.......25
Figure 6: China’s Outward Flows of Foreign Direct Investment in years 2002-2012.....27
Figure 7: Share of foreign enterprises in total export of China (1986-2010)…….……..31
Figure 8: Foreign Direct Investment Inflows as a percentage of GDP…………………32
Figure 9 : Foreign Direct Investment Outflows as a percentage of GDP…….....……....35
Figure 10: China regional income inequality……………………..………………..….....40
Table 1: General Theory of Internationalization (O advantages assumed)……………..11
Table 2: Selected theories of international trade and foreign direct investment………..13
Table 3: Realized FDI In China in years 1983-93 (billion U.S. dollars)…….....….…... 24
Table 4: Chosen China’s Outward FDI Policy Development………………………......29
Table 5: Share of industrial product manufacture considered by form of enterprise.......36
Table 6: Chosen R&D centers in China of foreign corporations……………………….37