Fdi And China's Economy

BackgroundUnder the economic globalization, the economic relationship between allthe countries becomes much closer, then the capital flow betweencountries grow much stronger, with Foreign Direct Investment (FDI)dominating. FDI has brought the internalization into every link of theeconomic chain, such as, production, R&D, transmission, and sale, itplays a role which is more and more important in the growth of the worldeconomy. To the host country, FDI can exert great influence on thetechnical progress, capital formation, international trade, balance,employment and so on, which can both be affirmative or negative.Since the reform and open-up of China, absorbing FDI has became animportant economic policy of China, and we absorbed great quantity ofFDI, with a wish to transfer our market profit for high technic andexperience of running the enterprises, through the in-flow of FDI. Thatpurpose is based on the consideration of the permanent economic growthof our country, at the meantime, the reality of the lack of capital when weneeded to make great investment, compels us to use FDI. All the elementsresulted in the great number of FDI we absorbed, till 1994, China hadbecame the No.2 country in the aspect of FDI in-flow, only behind theU.S.A, and she also had became the No.1 of the developing countries.Ordinarily, the in-flow of FDI will lead to the formation of capital in thehost country, it also can enhance the technical level of them, throughspillover effect. All those effect it brought to the host country economy isnot necessarily affirmative, that means it also can block the growth ofhost country economy. About this, there are different views in academiccircles, for example, Mello drew the conclusion from his research, hebelieved the effect FDI had on host country economy depend on thecomplementarity of domestic investment and FDI; Ruber claimed thatFDI will not have much relative effect if it is invested into the processtrade which is labor intensive. Papanek thought that the foreignenterprises will monopolize the market through their patent and thefavorable tax revenue imposed on them, then the market competition willdecrease as a result. Sun believed it was FDI brought the imequivalencebetween western and eastern region of China.Since a great number of FDI flows into our country, we still haven't madea clear sight of it, even in the academic circle. So, it is very important todo some research into the effect FDI has on our economy, only after thatwe can issue the proper economic policy.FrameThis paper consists of three chapters,the frame is displayed below:Chapter 1: The Tendency and Features of FDI1. The Definition and History of FDI. At first, the author defined the category of the research, and described the history and tendency of FDI. With the acceleration of economic globalization, the scale of capital flow between countries increased greatly, with FDI dominating. FDI exerted very great influence on global economy, so on the host countries. China also can not keep out of the tendency, our economy is not isolated, so it becomes very important to do some research on the influence FDI exerted on China economy.2. The History of FDI Absorbing in China. We started to absorb FDI as we carried out the Reform and Open-up Policy, after more than 20 years, we became No.1 country of FDI absorbing. When we look back to the past 20 years, we will see that the FDI in-flow increased tremendously, as we releasing the restriction on FDI by and by. Nowadays, our economic condition has changed a lot, we can judge the effect of our policy and continue our growth only after research in this field carefully.3. The Features of FDI We Absorbed. The FDI we absorbed has those features below: the amount is big while the average value is small; the FDI flowed into our country is mainly from Asian, particularly from Japan, South Korea, Tai Wan, and America is also a big resource; theFDI is mainly flowed into the 2nd and 3rd industry, within the 3rd industry, it is mainly invested to real estate; FDI is not equivalent bet...