On The Issue Of Foreign Capital Utilization

This dissertation, based on economics of development and international economics, is to put forward, by analyzing both external and internal investment environments in Chinese west, a new strategy of foreign capital utilization in the region. The mode, the keystone, and the necessary measures of the strategy are tentatively proposed and scrutinized after a theoretical review.The First Chapter constructs the basic theoretical framework. It discusses the role of foreign capital in the western region development. As regards economics of development and international economics, many theories, such as the Two-Gap Model, Open Endogenous Growth Model, and Imported Development Model, etc., explore in different perspectives the role of foreign capital in the economic development in developing countries. The above theories can also be applied to Chinese west, a typical region of underdevelopment. Foreign capital plays an extremely important role in both capital formation and the establishment of modern economic structure. The inflow of foreign capital into the western region is often followed by the introduction of advanced technologies and management. In addition, foreign capital will promote indirectly through the spillover effect the technological upgrading, institutional innovation, industrial modernization, and the establishment of the whole modern economic structure in the western region.The Second Chapter gives a historical review of the use of foreign capital in the western region, examines the achievements and unsolved problems, and delves into the causes of the inadequate use of foreign capital in the region. The paper argues that despite some achievements, there is still a wide gap between the western and eastern (especially south-eastern coastal areas) regions. This backward situation can be attributed to several causes. The investment environment, among others, is below the national average conditions and continues to worsen. Specifically, the investment environment is undesirable because of geographical barriers, adverse climates, underdeveloped infrastructures, unreasonable industrial structures, State's overwhelming share in the economy, human resources of low quality, and the lack of preferential policies.The Third Chapter defines the strategy of using foreign capital in the western region development. It analyzes international environment, national situation, and local conditions in terms of using foreign capital. Then it proposes a new strategy of using foreign capital in the western region development. With the establishment of a modern open economy as its ultimate goal, the strategy bases itself on the improvement of the overall investment environment, extends the concept of "foreign capital" to all capitals outside the western region, and focuses on the foreign capital invested in the exports-oriented production. This strategy diverging from the one in the eastern region is elaborated considering the needs of the Western Region Development Strategy, and the local conditions of the West.Considering the local conditions in the western region, the Fourth Chapter maintains that foreign capital should be concentrated on four fields, namely, the infrastructures, transforming traditional industries, reforming State-owned enterprises and promoting the sustainable development.Chapter 5 focuses on measures of using foreign capital in the western region development. In using foreign capital, the western region should pay more attention to quality than to quantity, although the latter is also vital. The measures are: improving infrastructures and the overall investment environment, reducing the restrictions on foreign investments, and promoting fair competition, etc.