An Empirical Analysis Of Foreign-funded Enterprises' Effects And Trends On Chinese Industry Structure

Foreign-funded enterprise is an important compositive part of our domestic industry. How to estimate the role foreign-funded enterprises (FFEs) play in our industrial structure has become a strategic issue concerning the further development of the Chinese economy. Based on the data of 2000 to 2004 from China Statistics Yearbook, this paper analyzes the effect of FFEs on our industrial structure and finds that there exist the following problems with FFEs though they have injected much vigor into the Chinese industry simultaneously.1. The inter-industry effect of FFEs is negative, which means that FFEs reduce the level of resource allocation. The sectors strengthened by FFEs are those with small amount of investment and short payback period, while the sectors these enterprises evade are those with large amount of investment and long payback period, mostly heavy chemical industry and the fundamental energy sectors. The relationship of FFEs with our domestic industrial enterprises is "substitutive", but not "complementary".2. The intra-industry effect of FFEs is positive. In many domestic industrial sectors, FFEs still operate much more efficiently than our domestic enterprises. One of the important purposes of absorbing foreign investment is to improve the technological level of China, which has not been completely accomplished.3. The total effect of value proliferation of FFEs is negative and that of assets profit tax is positive, namely, FFEs only realize lesser value proliferation but achieve high profits, which shows the weak relevancy of the invested industries by FFEs in China.To solve the problems mentioned above, this paper puts forward the following suggestions from three aspects respectively:1. As far as the issue of resource allocation is concerned, some adjustments should be made to the current "Catalog for the Guidance of Industries for Foreign Investment", in order to regulate FFEs' investment in industries with positive effect and to pilot the foreign capital to sectors with long payback period and in great need of large amount of investment.2. To improve the quality of our Chinese products, create a favorable policy environment, and raise the localization degree of production of the foreign-funded industrial enterprises.3. Making full use of foreign capital is after all an instrument to develop our Chinese economy. It is much more important to enhance the initiative innovation ability and R&D capacity of our domestic enterprises.