Comparative Study On Effect Of Two Patterns Of FDI On The Foreign Trade Of China

The Foreign Direct Investment (FDI) in China and the foreign trade of China with other countries have both developed rapidly since the reform and opening-up, this paper is to answer the question whether there is a complementary or substitutive relation between the two. Kiyoshi Kojima argued that the purpose of the direct investment abroad carried out by Japanese companies was different from that of the United States' transnational corporations, so the direct investment from Japanese companies made complementary effects on the trade between the host country and Japan, while the case of the US corporations was the opposite. Japan and the USA are two main sources of capital flowed as FDI into China. Enlightened by Kiyoshi Kojima, this paper completed an empirical study respectively on what relations should be between the direct investments from Japan and the USA into China and the bilateral trades of China with the two countries. Besides, this paper also made an empirical study on the relations between the FDI and the foreign trade of China in two respective periods divided on the base of technology level and average scale of the FDI enterprises. Then the paper colligated the two contrasts and concluded that the general pattern of FDI in China has been transiting from the so-called Japanese Pattern dominated by small and medium size enterprises to the so-called American Pattern dominated by transnational corporations, and the scale of foreign trade of China promoted by FDI is declining. Based on the conclusion and as well as the regional disparity of FDI, labor cost and market environment among the different parts of China, the paper argued that the east part of China should focus on absorbing direct investment from transnational corporations, while the middle and west parts of China should mainly attract small and medium size enterprises.