| China has in many ways taken the world by storm. In addition to its swiftly rising prominence in the global trading system, where it now accounts for over 6 percent of total world trade, it has also become a magnet for foreign direct investment (FDI), overtaking the United States (in 2003) as the number one destination for FDI.It was not always thus. China's integration with the global economy began in earnest only after the market-oriented reforms that were instituted in 1978. Capital inflows, in particular, were minimal in the 1970s and 1980s, impeded by capital controls and the reluctance of international investors to undertake investment in a socialist economy with weak institutions and limited exposure to international trade. All of this changed in the early 1990s, when FDI inflows surged dramatically on account of the selective opening of China's capital account as well as the rapid trade expansion that, in conjunction with China's large labor pool, created opportunities for foreign investors. These inflows have remained strong ever since, even during the Asian crisis of the late 1990s.Given China's status as a global economic power, characterizing the nature and determinants of China's capital inflows is of considerable interest for analytical reasons as well as for understanding the implications for the regional and global allocation of capital. Our primary objective in this paper is to provide a detailed descriptive analysis of the main aspects of capital inflows into China. Given the degree of interest in China and the relative paucity of data, we aim to provide a benchmark reference tool for other researchers, including by providing some critical perspectives on the numbers that we report.SectionⅠpresents a detailed picture of the evolution of China's capital inflows. A feature of particular interest is that China's capital inflows have generally been dominated by FDI, which, for an emerging market, constitutes a preferred form of inflows since FDI tends to be... |
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