Multinational Enterprises And Economic Competitiveness Of China

Since the implementation of reform and open policy, we have witnessed the rapid development of China’s economy, rapid improvement of international competitiveness. In2011, total output of enterprise above designated size in high technology manufacturing industry of China reached9.2trillion yuan,2-fold increased since2006, and ranked second in the world. The mobile phone, TV, computer and other major production of high-tech products has been ranked first in the world. In the same year, the high-tech products export volume exceeded＄500billion, accounting for29%of the national foreign trade export, is the world’s largest exporter of high-tech products. However, as the world’s largest exporter of the high-tech products producer, independent research and development in China was extremely backward. In2011, independent R&D expenditure of high technology industry accounts for the proportion of output value is only1.6%, while the proportion of Japan is10.6%in the2008, the proportion of the United States reaches16.9%in2007. Moreover, in recent years, the structural contradictions in the development of our country’s economy also began to highlight, optimizing industrial structure has becoming more and more inportant. These phenomena show that, from the point of the output structure, Chinese economy already have strong competitiveness, however, from the composition of the value chain, the economic competitiveness of our country is backward.This article attempts investigate how multinational enterprises (MNEs) influence the composition of value chain in China, and evaluation its effect of multinational enterprises on China’s economic competitiveness, from the perspective of global value chain division.To achieve this goal, this article will first investigate how local enterprises adjust there value chain structure, such as the length, capital intensity and technology intensity of the value chain, when facing the entry of multinational companies from abroad and from Hong Kong, Macao and Taiwan. According to these adjustments, we analyze the effect of the entry MNEs on the position of China in global value chain division. After clarify these effects, we will estimate how and to what extent the entry MNEs influence the competitiveness of Chinese economy, from two aspects of independently R&D level and relative wage of skilled labor to unskilled labor. Finally, the article will analysis the China’s outward foreign direct investment (OFDI), which has formed tide phenomenon, and discuss the potential impact of those foreign-invested enterprises on the economic competitiveness by analyzing location distribution of OFDI, characteristics of the parent company, and business of overseas branches.The research reveals that, after entering of MNEs, the low capital density and technology intensive domestic enterprises became more likely to be eliminated, and the survival domestic enterprises would correspondingly contract value chains, to focus on high capital and tow technology intensive value chain activities. We can consider that, in general, entry MNEs have deepened the value chain division of manufacturing industry in China, and raised the capital intensity of value chain structure, while reduced the technology intensity of value chain structure. It is to say, that entry MNEs optimized value chain structure of China in terms of capital intensity, while deteriorate it in terms of technical intensity.The decrease of technology intensity is especially obvious on the independent research and development. Both the share of independent R&D enterprises and the R&D intensity of those enterprises tend to decline due to the entry of MNEs. On the one hand, the R&D level of foreign invest firms or affiliates which were established by MNEs is lower that other domestic enterprises, even MNES possess leading technology, which incur a direct negative effect, on Chinese overall R&D level. The negative effect is mainly due to extremely low R&D level of pure foreign-capital enterprise independent. For foreign joint ventures or cooperative enterprises, especially when foreign investment share is not very high, the company independent R&D level increase with the firms’foreign capital share. On the other hand, because the entry MNEs may lower independently R&D level of other enterprises in same province or foreign province, it generates a negative indirect effect on Chinese overall R&D level. In terms of economic significance and robustness, MNEs generate a more severe indirect impact on R&D level to other enterprise in the same province than enterprise in other province.This influence, to some extent, has been conducted to wages of skilled labor. In this paper, we investigate the influence of MNEs on the relative wage of skilled labor to unskilled labor from the effect of technology spillover, linkage of upstream and downstream, value chain, and capital importing. We found that entry MNEs cannot only promote but also inhibit the skill premium, while, in general, inhibition effects are more outstanding. Further research reveals that the positive effect is mainly reflected in low technology enterprise, while, to high technology enterprise, the negative effects are dominant.On the analysis of foreign direct investment in China, we found that the most typical forms of investment are high competitive enterprises with high capital, technology intensity, and excellent organizational structure, and rich international experience, direct invest to proximal countries with large market scale, low wage, abundant human capital, and low business barriers, to conduct commerce and trade, certainly, there is also a part of the enterprises invest abroad for product development and design, while only a few enterprises transfer their low-end value chain to foreign countries. These show that Chinese "going out" firms may generate a similar influence on value chain structure of China with entry MNEs.Overall.both the entry of foreign MNEs, and domestic enterprises to go out, can prompt our country to participate in the global value chain division. This division pattern is mainly that foreign countries export advanced technology to our country, under the influence of which our country exports products and components. This division mode generated two opposite effects on the economic completeness of China. On the one hand, it promoted the advanced products output increasing dramatically. On the other hand, it reduces intention of domestic enterprises to create technology, which causes independently R&D level decrease, and relative wage of skilled labor decline. These two effects can partly explain the paradox that the output size of high technology industry in our country is leading in the world while R&D intensity is far behind the developed countries.When China’s economy is in a relatively backward level, that there was a large gap between domestic technology level and international technological frontier, can rely on imported technology to achieve rapid economic growth. When China’s economy has been greatly developed at present, that the domestic technology level is approach international technological frontier and the space to import technology was sharply shrank, in order to achieve further economic development and strength economic competitiveness, China must rely more on domestic enterprise’s technical creation activities. At this point, we must fully consider and understand the negative on high technology value chain activities like R&D which are exerted by MNEs through global value chain division.