The Analysis Of China's Foreign Investment Policy Through The Connection Between Utilizing Foreign Direct Investment And Capital Flight

At the outset of the Reform and Opening up, domestic construction was hindered by capital shortage. In order to overcome the obstacle, the Chinese government issued a series of foreign investment incentive policies, including setting up special economic zone, coastal economic zone, and tax breaks. As foreign direct investment flowed into China, a large number of advanced technologies, equipments and management experiences were introduced into China as well, increasing revenue and employment. The policies, which contributed a lot to China's economic development, upgraded the industrial structure in various ways. However, capital flight emerged during the economy transition process, and the problem became even worse in the last half of the 1990s of the 20th century. According to the studies done by domestic and foreign scholars, China's capital flight was mainly caused by transitional capital flight, owning to salary difference treatment between domestic and foreign investment enterprises. The transitional capital flight has a direct relationship with foreign direct investment. As China's economy continue to increase steadily in recent years, foreign exchange reserves and domestic savings also keeps rising. Thus, the'market-for-technology'foreign policy no longer fit in the new situation.Through the connection between foreign direct investment in China and capital flight, the paper analyzes the continuous existence of preferential policies for foreign investment, presenting four ways to utilize foreign investment under new circumstances according to the'11th Five-Year'plan, Which are: (1) Changing from blind pursuit of foreign investment quantity to the quality and level of foreign direct investment. (2) Preferential policies for foreign investment should have new aim which turns'excessive concessions'to'key concessions'. (3) Gradually canceling general preferential policies for foreign investment to establish the policy system of unified foreign and domestic enterprises. (4) Safeguarding the state economy while utilizing foreign investment.