| The impact of FDI on economic growth is one of the most controversial topics in the literature. Studies of the foreign direct investment show that in the process of integration of the national economy, the role of FDI on economic development of the host country may have a double character. FDI is expected to generate direct effects on the host country economy as well as indirect effects stemming from the increase in productivity and competitiveness of local producers. The latter will benefit from spillover effects arising from the establishing multinationals, through different channels or mechanisms. Determinant factors for the enactment of spillovers have been identified in the literature, but the role of government has been overlooked.As the impact of FDI on the host economy is ambiguous: are manifested both positive and negative effects, there is a need to develop such an industrial policy that can ensure the realization of the creative potential of FDI and eliminate negative effects not only in the short term, but in the long term. Active involvement through FDI of advanced technologies allows implementing a strategy of catch-up development, a policy of import substitution.Government roles for inducing positive FDI spillover include planning, regulating, mediating, stimulating, creating absorptive capacity, among others. Evidently, the role’s composition will depend on a series of determinations, from the type of capitalism to the entrepreneurial talent characteristic of a given country and the characteristics of the focused industry.There are different points of view and in relation to the engineering industries, which primarily are in need of modernization. A number of researchers give priority to the automotive industry, which is often called the "locomotive" of economic development. Indeed, the automotive industry is one of the key sectors of economy and refers to the number of high-tech, strategically important industries.China’s automotive industry hasn’t developed long, and the national policy affects its development. The problems of low level of market concentration degree and technology in automobile market need to be further improved. From 1986 China viewed the automotive industry as a pillar industry. The auto industry is technology, capital intensive industry. In the first year of development of automotive industry in China there existed problems such as low level of technology, capital shortage and so on. So the attraction of FDI has become one of the ways to develop and modernize Chinese automotive industry. Through the utilization of foreign capital for nearly 30 years, China’s auto industry has made great development.China’s auto industry has developed extensively through foreign direct investment, which has come in the form of alliances and joint ventures between international automobile manufacturers and Chinese partners. These international automobile manufacturers, who generally dominate the higher end of the Chinese market, have focused on making cars for China’s large and fast-growing market. The domestic Chinese automakers, who occupy the lower end of the market, struggle to improve design and quality to expand sales overseas.The FDI brings in advanced technology and management experience, but also impacts China’s economic development imbalance. The analysis of FDI in China’s automotive industry shows that it contributes to China’s economic development, industrial progress, and employment. At the same time there are less high quality FDI from the countries with advanced technology, while most of the FDI are from surrounding countries in Asia. Therefore, in order to improve the quality and the utilization rate of FDI in China, relevant policies should be formulated, to establish a good competitive environment, incite enterprises to increase their absorptive capacity.Until the mid-1990 s, the auto industry was highly protected in China. When the government officially announced its "Industrial Policy for the Automobile Industry" in July 1994, it showed its intention to develop and to consolidate China’s indigenous automobile industry. This approach was modeled on that of Korean industrial development in the 1970 s, while at the same time, the need for funds, technology and management to upgrade the greatly lagging industry, urged the authorities to attract foreign direct investment(FDI). However, the operational practices involve a set of limitation measures, the most important of which are high tariff and non-tariff barriers, screening, foreign equity limits, and local content requirements. The industrial, trade and investment policy of the automobile industry in China has one main objective: promoting indigenous industry with a harmonized industrial organization. Early policies have had many side effects that lead to unplanned results. Consequently, since the end of 1990 s, a certain degree of deregulation towards an open economy and globalization has taken place.After China’s entry into the WTO in 2002, almost all the remaining global automakers entered China, and although no longer a requirement, teamed up with a local partner. As a result, a complex partnership structure between locals and internationals has developed. This is not without its problems. While this structure helped the transfer of manufacturing know-how and experience to Chinese manufacturers, drove the initial development of local state-owned enterprises and fostered the growth of local suppliers, the transfer of product development capabilities to the local firms did not occur – largely because there was almost no product development activity within these JVs. Furthermore, the complexity of the crossholding partnerships also results in considerable difficulty in managing operations.Despite heavy foreign investment and the market discipline of WTO entry, many industry experts argue that major structural and technological weaknesses continue to exist in the Chinese automotive industry. While China’s automotive industry has undergone rapid development since the opening up of China’s economy, further structural and technological changes need to take place for it to be internationally competitive.Research and design capabilities are of crucial importance. The deficiency of research and design capabilities was seen a critical inhibitor by senior Chinese auto executives. This applies equally to vehicle manufacturers, as it does to component suppliers. Both local vehicle manufacturers and suppliers are notoriously short of technology. Government policies, by encouraging JVs and prescribing a local content rate, were designed to foster technology transfer from international automotive makers, and to develop domestic R&D capabilities.For the Chinese vehicle manufacturers, this general lack of R&D capability manifests itself in a persistent reliance on foreign manufacturers, usually their jointventure partners or license providers, which deliver product designs, and often also tooling, manufacturing equipment and production expertise. |
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