An Analysis Of FDI's Appropriate Scale In China

With the expanding inflow of FDI to China, it was so important for China to control the FDI's scale timely and efficiently and set up the reasonable policy of FDI inflow.On the basis of the Theory of Foreign Capital's Scale, this paper extracted FDI from Foreign Capital and come up with the concept of FDI's appropriate scale in consideration of FDI's unique characteristics and features, which comprises of three aspects: FDI's essential scale, FDI's absorptive scale and FDI's security scale. When the three sub-scale met at one exact point, it was an FDI's appropriate scale, but during the actual economic processes, FDI's appropriate scale followed the following guideline: FDI's security scale was prior to FDI's absorptive scale, while FDI's absorptive scale was prior to FDI's essential scale.According to the different attributes of the three sub-scales, this paper made an empirical analysis according to China's actual situation. During the analysis of FDI's essential scale, in order to eliminate the non-balance of the two variables GDP and FDI, this paper made unit root test and cointegration test and then formulated an Error Correction Model to estimate the relation of the two variables; In the analysis of FDI's absorptive scale, this paper set up an integrated evaluation function and then made an non-dimension disposal using the biggest factor, and then gave the weight to the variable using the differentiated coefficient, at last formulated an Vector Autoregression Model to forecast the value of FDI; During the analysis of FDI's security scale, this paper introduced two measurement indexes: the stock holding rate of FDI and the market share of foreign enterprises and then measured the two indexes according to the alert line of FDI's security scale to the main industries in China.The main conclusion of this paper is that we can't say whether FDI's scale is large or small on the whole because FDI's appropriate scale is changing in stages. At present, FDI's scale is a bit large so that a plenty of FDI can't be made full use of and the investment structure is not reasonable, so some industries are controlled by FDI but some industries didn't get enough FDI. The paper suggested that we should adjust the policy direction in order to avoid centralization and monopolization on the basis of high economic growth, and simultaneously we should improve the quality and benefit of inflow FDI and the integrated ability of the domestic market to FDI.