The Effect Of FDI On The Market Structure Of China's Automobile Industry

1. View of subject selectionGlobalization is changing the world's economic pattern and every single country. After the 90s of the 20th century, multinational corporations have been the dominant power of globalization. During this process, the developing countries are being more and more open than before. They had reduced the tariff barriers and the limit with foreign direct investment (FDI) greatly. Globalization brings both chances and challenges to them.As a new market, China has achieved great success in attracting FDI. Mncs have entered China's market and played an important role in the country's economy development. How Mncs would affect the industrial market structure of China? Is there the possibility of potential monopoly? Monopoly will restrain the domestic investment and harm the benefits of local consumers and manufacturers. And even more, there will be great damage with the long-term economy development and state safety if foreign companies monopolies the local market. As a result, the research of how dose FDI affect local market structure is meaningful and necessary.I choose the automobile industry as following reasons.⑴Automobile industry is one of the most important industries in the world economy development. It has strong domino effect with relevant industries. State industry policy has apparent effect on it. Automobile is a kind of highly processed product. An auto may need as much as more than 30000 components. The manufacture chain is long in the automobile industry. Other industrial products are needed while producing an auto such as steel, colored metal, rubber, electron, petroleum, chemicals, machines, appearance, etc. It will drive the development of the upriver and backward position industries even the technology advancement.⑵There is apparent scale economy in the automobile industry. Mncs have invested greatly in it. For example, there were 88 auto companies in America at the 20s of the 20th century only 2 of them survived until 1998. Most of the world auto market is oligarchic monopoly. As a result, it is meaningful to choose it on the study.⑶China's auto industry is one of the most popular industries with Mncs. There will be huge productivity superfluous in the next few decades in the global auto industry. As a result, a lot of Mncs have to seek for and exploit new market in the world. Meanwhile, China is one of the most attractive markets in the world. As the country is slowly knocking down its entering barriers, Mncs have entered the market and competed in the market mostly.2. Studying methodAnalysis of the effect of FDI on the market structure is an important part of industrial organization theory and foreign investment theory. The most important academic accomplishment is from Vernon, Hymer and Kindieberger, Knickerbocker, Caves and Dunning. Recently developing centuries have attracted huge FDI and provided mass data for research. But there has not been a consistent research result (Lall, Mehta, Zemplinerova and Jarolim). There are not many researches on the subject in China only after the 90s of last century. Zhang Jikang, Zhang Hong, Wu Dingyu, Jiang Xiaojuan have done a lot of research about the relationship between the market structure of China's automobile industry and FDI. But there are still no consistent results.Studying the relationship between the market structure of China's automobile industry and FDI involves the following problems:Firstly, what are the factors that affect the market structure? What is the academic basis of their relationship? How to do the study from the economic system info and methodology?Secondly, there are abundant theories on the subject, how to choose the seemly angle of view to explain the main opinion? How to build an effective analysis frame from the existed intertexture of direct investment theory and market structure theory?Thirdly, what is about the developing history and current situation of the market structure of China's automobile industry? Which important factors influence the evolvement tracks of the market structure? How to set up the model to explain the reality?3. Content and viewpointsChapter 1 is an introduction of the research purpose, significance, literature summarization, studying method and main content of this paper.Chapter 2 is the review of the development history of China's automobile industry and the current situation of FDI in the industry. It is the base of the following analysis.Chapter 3 is about the effect of the FDI on the market centralization. There are both academic and practical analysis.Chapter 4 is about the effect of the FDI on the product difference and industry entering barriers. The first part is the contrast of the product difference and ad density of the industry before and after 1983. The second part is the analysis of the enter barriers of scale economy, product difference, internalization and behaviors.Chapter 5 is about the basic conclusions and policy suggestions. The conclusion is that FDI has not caused monopoly in China's automobile industry although it indeed boosted the market centralization, product difference and industry entering barriers. On the contrary, FDI has improved competitive efficiency of domestic automobile enterprises and the whole industry structure. Finally, advices about the industry policy and corporation development are given. The government should make policies combined proper protection with positive promotion of FDI inflow. The local corporations should enhance their R&D level and enlarge their scales.