The Comparative Analysis About The Effect Of The Mutual Investment Between China And Korea On The Economic Growth Of Two Countries

Since 1990s,the increase speed of FDI (foreign direct investment) has been exceeding the increase speed of international trade. The trend is to increase more and more. The FDI has caused a very great influence on the economic development of the parent country, host country and even the whole world.The absorption and utilization of FDI has brought positive effects on China's economic development after reform and opening-up. For example,the FDI effectively solved the funding shortfalls by increasing the capital stock and increasing revenue sources. At the same time, it also balanced China's international balance of payments by increasing China's foreign exchange supply, easing the pressure on China's employment by absorbing China's labor force and also improving the local workers'labor skills and the efficiency of production through the introduction of foreign advanced technology , management expertise,and the training of technical personnel. In addition,FDI in China contributed a lot to the rapid development of China's international trade and the structure of China's international trade and industry. FDI also has some negative effects while promoting China's economic growth. For example,FDI in China is concentrated in the secondary industry,which is not conducive to China's optimization of industrial structure. FDI in China is mainly concentrated in coastal areas in the east,but central and western regions is relatively low,the imbalance of China's increased investment in the regional structure increased the difficulties of the balanced regional development. Some FDI consumed a large amount of non-renewable resources in China, which worsened the ecological environment of China,and will make adverse impact on China's sustainable development strategy extremely. Furthermore, FDI in China caused the trade-balance-transfer effect, resulting in the worsening of China's foreign trade friction. Also,the entrance of large multinational corporations threatens Chinese national economic security.Korean government realizes the importance of the foreign capital detention after the Southeast Asia financial crisis of 1997. Therefore, Korea's FDI to China increased rapidly while China's FDI to Korea increased gradually. After diplomacy handing, China's FDI to Korea has increased from 0.005 billion US dollars to 1.795 US dollars in 2006.FDI from South Korea is an important component of the total FDI attracted in China. After the diplomatic relations established between China and South Korea in 1992,FDI from South Korea in China expanded rapidly. From 1992 to 2006, FDI real-amounts from South Korea are increases in China from 119 million to 3.894 billion US dollars, and the proportion from 1.09% to 6.19%. According to the Department of Commerce of PRC statistics, the object number of South Korea invested in China from650 increased to 4262; the contract-amounts increased in China from417 million US dollars to 12.316 billion US dollars, and the proportion from 0.72% to 6.36%.China has become South Korea's largest foreign direct investment destination.As an increase of investment going abroad, South Korea is also constantly adjust to attract FDI policies. The 1997 Southeast Asian financial crisis made South Korea aware that the government should select the policy of attracting foreign investment; the South Korean government has started to adjust policy, expanding measures of attracting foreign direct investment. Therefore FDI of Korea to China has experienced a rapid growth; and the Chinese direct investment in South Korea has also increased gradually, from the initial 5 million US dollars at the beginning of establishment of diplomatic relations gradually increased to 1.795 billion US dollars in 2006.Based on the review of FDI theory of the world and absorbing the outstanding research results in related fields,making use of the latest data at home and abroad and comprehensive use of combining theory and practice, Empirical Analysis of standardized combination of static analysis and dynamic analysis methods, analyzed the mutual investment between China and South Korea on the economic development of the two countries from the investment motivation, investment scale, the methods of investment, investment sectors of China and applying econometrics regression method to discuss bilateral mutual investment on the effect of economic development, particularly on the economic growth of the two countries.In this paper, in promoting China's economic growth, Korea's direct investment in China is better than the relative effects of other foreign direct investment in China. This was mainly due to South Korean direct investment in China was concentrated in the manufacturing sector, and Korean multinationals are in the application of advanced technology position in the world. South Korea's direct investment in China, not only will bring to China advanced technologies and techniques to enhance Chinese products grades, and enhance the competitiveness of Chinese enterprises consciousness, thereby greatly enhancing the competitiveness of Chinese enterprises in the international market and its status. At the same time, The empirical results also show that China's direct investment in South Korea has little positive technology spillover effects, but through direct investment to study advanced technology in South Korean, and the motivation of the investors has changed gradually, the investment to make greater access to South Korea market and to make trade interests gradually giving way to the investment of purchasing, learning technology and personnel training. After they get the advanced technologies, the will bring it to home countries, which will cause the original enterprises with competitive power in the international market to lower gradually, and thus having a negative impact on the growth of the Korean economy.To the problem of expanding the scale and improving investment returns of the South Korea's foreign direct investment in China,the author brought up some basic measures to China and South Korea. Suggestions on South Korea :(1) improve the investment environments; (2) select the right styles of investment; (3) encourage the diversification of investment pattern. Suggestions on China : (1) complete the relevant laws and regulations to improve the investment environments; (2) formulate the scientific and rational policies to attract foreign direct investment, optimize the industrial structure of South Korea's foreign direct investment in China; (3) lead and encourage the South Korea's foreign direct investment in China'Midwest areas, exert the guide effect of the policy.