FDI And The Development Of China’s Textile Industry

In recent ten years, China’s textile industry has made great strides. China’s textile production and export become more and more important in the world particularly after the entery into WTO. The statistic analysis shows that China’s main products in textile industry, such as fibre, yarn, cloth, have got more rapid output growth in the recent ten years than in any past period. Meanwhile foreign-owned enterprises are playing more and more important role in China textile industry. The effect of FDI on the development of China textile industry could not be neglected. How does FDI affect the development of China textile industry? This paper studies FDI effect in terms of the FDI location choice determinations in China, FDI’s influence on domestic investment, FDI technology spillovers, FDI employment effect, FDI’s effect on export.Our statistical analysis shows that the FDI from Hongkong, Macao and Taiwan and the FDI from other sources have different spatial distribution. This paper empirically analyzes the panel data of China’s 31 provinces 1999-2006 with GMM. The result is that the agglomeration of similar firms and the demonstration of foreign firms are important factors that affect FDI location choice in China. The factor of institution also significantly affects the FDI location choice. Labor cost has significant effect on FDI from Hongkong, Macao, Taiwan. Land cost has negative effect on FDI location choice. The development of the third industry has negative effect on FDI location choice in eatern coastal region and has positive effect in middle and western regions. Labor quality, as well as R&D circumstance, has different effects in different regions.The theoretical analysis concludes that crowd in or out effect may be affected by FDI originating sources and may be affected by regional differences in China. Further empirical analysis with IV estimation on China’s panel data 1999-2006 supports the theoretical conclusions. FDI in textile industry has no effect as a whole on domestic investment in the same industry. Further analysis based on FDI different sources and different regions in China gets more diverse conclusions. FDI has crowd-in effect in the eatern region, crowd-out effect in the western region, no effect in the middle region. For the eastern region, the crowd-in effect of FDI from Hongkong, Macao, Tiwan is smaller than FDI from the other sources. For the western region, the crowd-out effect of FDI from Hongkong, Macao, Tiwan is smaller than that of FDI from the other sources.The paper studies the technological spillovers of FDI in textile industry and spillover channels with GMM estimation on unbalanced panel data of 9 provinces such as Guangdong, Jiangsu, Shandong and so on. The horizontal spillover of foreign firms is the main channel whether the spillover result is measured by all-personnel labor productivity or by total factor productivity. The technological gap between domestic firms and foreign firms, as well as the marketization has effect on horizontal spillover of foreign firms. Vertical industry linkage has effect on domestic firms’tital labor productivity, but has on effect on domestic firms’all-personnel labor productivity. Backward linkage promotes the all-personnel labor productivity of domestic firms, while forward linkage has negative effect. The effect of vertical spillover on all-personnel labor productivity of domestic firms depends on local marketization.We study the direct employment effect and indirect employment effect in the chapter concerning FDI’s influence on China textile industry employment. The empirical analysis on 31 provinces’panel data with OLS and GMM estimation respectively shows that the employment contribution of FDI is mainly its direct employment effect. Its indirect employment effect is negative. FDI hinders employment in China’s textile industry through crow-out effect on domestic investment and through technological spillover. FDI has different employment effects in China’s different regions. It reduces textile industry employment in the eastern region and promotes employment in the middle and western regions. FDI from different sources has different indirect employment effects. FDI from Hongkong, Macao, Tiwan hinders employment through crowd-out effect not only in the short run but in the long run. FDI from the other sources promotes employment through the extensive employment effect.The empirical analysis on FDI export effect shows that FDI has insignificant direct effect in the short run, but has significant direct effect in the long run. FDI from Hongkong, Macao, Tiwan has significant direct effect in the short run, but has insignificant direct effect in the long run. FDI from the other sources promotes textile industry export in the long run. It has negative effect through competition and has positive effect through institutional transformation.The paper further studies FDI’s effect on the state-owned enterprises export in textile industry. FDI has no effect on the state-owned enterprises export.The empirical analysis conclusions show the following problems needing further study as the industrial support and industrial substitution effect on attracting FDI, precisely dividing industrial linkage effect and industrial competition effect in terms of FDI crowd-in or out effect, FDI effect on employment quanlity in terms of FDI employment effect.