Financial Deepening Impact On China's Foreign Direct Investment Performance

As the financial crisis happened, the flow of international direct investment in the world has been changing. The economical situation is bad. Foreign direct investment (FDI) in the world has been seeming to decline gradually quarter by quarter since 2008. United Nations Conference on Trade and Development(UNCTAD) figured out the world GDP decreased by 2.2% in 2009. The research about the reason of foreign direct investment tells us many factors may affect FDI. After the theory of financial deepening was brought out, people on the earth set about pursuing the effect of finance on FDI. Then how finance acts on FDI? And what is the relationship between finance, FDI and economical growth? Only a few scholars study the effect of financial deepening on the results of FDI on the host countries. It is important to acknowledge by systematic research how financial deepening affects the efficiency of in-flowed FDI, which is the guidance of the policies about them to encourage the economic development stably and healthily in the host countries. So it is with in China.The author studies the existing research and knowledge such as foreign successful experience. Verified under the guide of them, the paper justifies that financial deepening helps more in-flowed FDI with gearing up economical growth in the host countries, which is some different from the point of Mackinnon. He thought developing countries should not depend on foreign asset excessively. They can raise capital through financial deepening. After all, there are few studies about financial deepening and the benefits of in-flowed FDI home and abroad. Something valuable in the paper is indicated by this.To begin with, the paper researches about the way how financial deepening affects on benefits of FDI normatively. Many financial sectors bring the financing cost down. Many financial instruments are used by FDI. Developed financial system push FDI forward in supervision. It weakens the risk of FDI. Financial deepening offers convenience to domestic enterprises to assimilate foreign technology through FDI. Foreign financial sectors'entering has positive effects on the economy in the host countries. Financial deepening strengthens the incentive effect of multinational companies on the reform of domestic enterprises. Financial deepening means good financial supervision, which guarantees the allowable use of foreign capital. All these can attract FDI flowing inward. At the same time, they are in favor of the quality of FDI through capital effect and technology spillover and so on. That is to say, financial deepening helps FDI with gearing up economical growth in the host countries.Then the paper summarizes the process of the situation of financial deepening and in-flowed FDI in China. Next, a metrological model is set based on China's historical data. Financial generality, the ratio between the market value of stock and GDP, and the percentage of the fiscal investment in fixed assets investment are independent variables. The ratio between the value of in-flowed FDI and GDP is the dependent variable. This positive analysis aims to demonstrate the effect of the situation of financial deepening on benefits of in-flowed FDI in China. It turns out to be different from the theory. In China, the situation of financial deepening is not very good for the benefits of in-flowed FDI. The regression indicates that the stock market helps the in-flowed FDI accelerating economical development in China, and the fiscal investment is an obstacle to the acceleration. This agrees with normative analysis. Besides, the regression indicates that the correlation between the financial generality and the benefits of in-flowed FDI is negative. The paper analyzes the intrinsic causes. However the truth, financial deepening helps in-flowed FDI with pushing economical growth in the host countries, cannot be denied because of this. The reason of the phenomenon exists is that there are some defects in the process of financial deepening in China.Last, to change the phenomenon, some financial and FDI policies should be improved. Some suggestions are brought up accordingly. And the paper elaborates on the importance of them. First, strengthen financial innovation and optimize financial structure, push in-flowed FDI to boost the economic development in the host countries. Second, promote the reform of state-owned enterprises and banks. Third, perfect the mechanism of foreign capital-guiding and strengthen financial supervision.Some inadequacy appears in the paper. It presumes that the high inward FDI performance index means the full use of foreign capital. But it is based on two hypotheses. Any in-flowed FDI is homogeneous and every country assimilates it identically. The paper tries its best to prove its point. However, the effort is not enough to show the relation between financial deepening and the performance of in-flowed FDI. We can further inquire into the problem combining with the reality in different places on the earth.