Analysis Of FDI Spillover Effect On China's Car Industry

Spillover effect is usually defined as the amelioration of the technology and production because of the involuntary expansion of the technology from the pioneers in the hosting countries which receive foreign direct investment. It falls into two categories: domestic and international spillover effects. This paper adopts the theory of the latter to analyze the FDI spillover effect on China's automobile industry.Since the foundation of China's First Automobile Factory in 1953, automobile manufacturing was on its inception. It is over 20 years since foreign auto manufacturers had come into China in1980s.In 1994, the car section was listed as one of the vital project invested by the government in aegis of the stipulation of the automobile industry policy, and from then on, foreign capital were flooding into China, casting multiple influences on the car industry. China's accession to WTO in 2001 is a turning point for FDI on our car industry. According to China's commitments, by July 1,2006, the threshold for foreign investors will be lowered, which will make it possible the drastic ventilation of the car market, thus presenting further impact on the growth and development of our car industry. At present, the rate of localization in the car production is of a high level;therefore, some experts say that there exists a stronger capability of technology absorption. However, there is still a long way before we obtain the anticipated level of spillover effect.This paper is going to analyze the influences from FDI at different stages with the tool of FDI spillover effect theory, in retrospection to the history of using foreign investments, studying the restraint factors and the opportunities after the protection period. Then on the basis of the analysis above, exploring the expected spillover effectunder the circumstance of a more open policy and market climate, and eventually finding an appropriate way for the car industry.