Crowding Out Effect Analysis Of FDI On China's Capital Formation

With the phenomenon of the coexisting of many foreign direct investment(FDI), a good deal of deposit, plenty of foreign exchange reserve, and huge capitals flight, the paper discusses the problem whether the international capitals formation crowds out the domestic capitals formation under the condition of economic internationalization and economic financialization.The theories on the effect of the international capitals formation are different, and the result of the empirical studies varies with different regions, different countries, and different forms of foreign capital. The qualitative analysis on the effect of the international capitals formation in the product market as well as money market, and the integrated-invest models on the basis of data from 1985 to 2001, all show that foreign capitals crowd out the domestic capitals formation. The crowding-out effect results in domestic capitals waste and capitals flight, which intensifies our dependence on foreign capital. And the excessive dependence make our economic controlled directly or indirectly, which have imperiled our economic safety.The reasons that cause the crowding-out effect are as follows: Firstly, the basic reason is the flaw of our system: our administrative system leads to government's wrong behavior on the introduction of foreign capital. Our direct and indirect financial systems are both so imperfect that hinder domestic capital formation. And the poor system of our enterprises also lead to low efficiency of capitals formation. Secondly, the direct factor is the policy fault: the extension of national treatment make the foreign capitals take the preponderant condition in the competition with domestic capitals in the unequal market. At the same time, because government's supervision strength to foreign capitals is not enough, and the corresponding laws and regulations are imperfect, foreign capitals can adopt all sorts of means improper, even illegal, to seek the interests and monopolize the market. Thirdly, because of the inner instinct that chasing interest of capitals and the characteristic of economic internationalization and economic financialization, the negative influence offoreign capitals exist objectively.To reduce the crowding-out effect, and take more benefic from international capitals formation, we should, in a short term, adjust the policy and give national treatment to foreign capital, and perfect the relevant laws to strengthen supervision, and introduce the foreign capitals with high technical content. On a medium and long-term, we must perfect the investment and financing market, and let our enterprises more competitive.