The Study On China’s Outward FDI’s Structure And Driving Factors And Macro Impact Factors

With the deepening of economic globalization and investment liberalization, foreign direct investment has become an important link to the world’s economic activity. Through international foreign direct investment, we achieve the international transfer of production factors and improve the efficiency of production factors of various countries and promote national economic development and strengthen the economic ties between countries. Outward foreign direct investment has become the new focal point of economics. The topic of this paper is based on the following background:1st, Historical Background. Development path of an open economy is from low to high generally considered to be export of commodities, export of capital and export of intellectual property. China has already become a very mature commodity-exporting country, so the transform from export of commodities to capital is a historical necessity.2nd, Policy Background. China’s Twelfth Five-Year Plan proposed a big step development of Outward fdi. Because China is still in the primary stage of market economic, how to provide economic theory to achieve Twelfth Five-Year Plan is very conformed with policy trends.3rd, Realistic Background. According to UNCTAD’s research, the returning investment has a substantial proportion in China’s utilization of foreign capital. Some scholars believe that the return investment is known as "pseudo-foreign investment" and the source of that type of investment is called "virtual investment". The foreign virtual investment which is "capital pool" essentially and the internationalization of China’s domestic capital is quite different from the investment to G20 countries. This paper differentiating Outward fdi is entirely consistent with the status quo of China’s Outward fdi with a strong practical significance.China has produced not only conditions but also capacity and demand for Outward fdi. In order to guide the development of China’s Outward fdi correctly, we need to answer a series of questions:how is the structure of China’s Outward fdi? What is the size of Outward fdi in growth? What factors are driving the growth of Outward fdi? Macro impact factors affect China’s foreign direct investment in what way?To answer these questions, this paper uses the method of the literature research, the number of descriptions and statistics, quantitative analysis, theoretical analysis. We differentiate the Outward fdi innovatively in two parts:physical investment and virtual investment. With the integrated application of GM gray analysis, LMDI analysis, factor analysis, the paper analysis the motivation of the China foreign direct investment. explores how to make macro economic policy.The main conclusions of this paper are as follows:1 st, the development stage of China’s outward fdi. There was a huge gap between the utilization of foreign capital and the outward fdi in China. According to IDP theory, the development stage of China’s outward fdi exceeded the normal level. China’s IDI Performance Index and Potential Index belonged to the leading countries in attracting foreign investment before 2005 and has began to enter the rank countries who didn’t show the potential since 2006. The ODI to IDI ratio in China was below the average value of industrialized and emerging market countries that shows China’s outward fdi still remained at a low level of development. The ratio has surpassed the average value of BRICs since 2009 that shows China’s outward fdi entered the third developing stage of outward fdi in 2009.2nd, the structure analysis of China’s foreign direct investment. The types of China’s outward fdi. China’s outward fdi can be classified into two categories:the outward physical investment which is closely related to the real economy, can be explained well by the manufacturers theory of neoclassical economics; the outward virtual investment which is only cross-border flow of funds or indirect investment, is not related to real economy or manufacturers theory but a arbitrage activity in financial theory. The outward virtual investment such as ODI to British Virgin Islands, Cayman Islands, does not produce any real economic activities. Its essence is only the capital being transferred from "onshore" to "offshore", from "domestic" to "foreign". HK SAR plays an important role in China’s outward fdi. HK SAR showed a higher complement (alternative) resistance to the others, which remind the Chinese government that the increasing proportion of investment in developed economies will reduce the influence of HK SAR in outward fdi of China.3rd, the growth trend of China’s outward fdi and driving factors, the growth trend of China’s outward fdi. The result of policy objectives predicting method was almost equal to the predicted value of GM(1,1) model that reflected the business official sector set a scientific and realistic objective. But in order to maitain the historic growth rate, the govenment should implement macro-control policies to promote China’s outward fdi.Using LMDI addition decomposition method, the thesis decomposed the driving factors of China’s outward fdi growth to economic activity effect, industrial structure effect, investment efficiency effect. The main factors promoting the growth of China’s outward fdi are investment efficiency effect and economic activity effect. The decomposition of investment efficiency effect shows that the tertiary sector has the biggest impact on the growth of China’s outward fdi. In order to promote the growth of China’s outward fdi in short term, the government should focus on the development of tertiary industry.4th, the motivations of China’s outward fdi and macro impact factors. The motivations can be divided into political motivation and economic motivation. The outward fdi is seeking maximum economic benefits in the long term but probably immediate political benefits in the short term:the western countries present market players directly intervene politics through providing finance for election and multi-national corporations can serve national strategic and diplomacy function. The economic motivation can be divided into the motivation of physical investment and the motivation of virtual investment. The physical investment is to expand the production capabilities essentially, the fundamental motivation of which is to pursuit more profits, specifically including:market expansion, access to resources, improving production and exchange efficiency, technology acquisition. The motivation of virtual investment includes:tax-deductible and tax planning, overseas listing and financing, breaking barriers to international business, international arbitrage, transferring illicit income.The thesis used factor analysis to analyze the economic affecting factors and figured out that the affecting factors of China’s outward fdi can be dimension reduced to factor of macroeconomic, factor of monetary policy and factor of fiscal policy, whose contribution rate of China’s outward fdi growth were 49.163%,25.041% and 8.182%.