Foreign Direct Investment In China's Ownership Structure Factors Affecting The Research

MNCs, which play an important role in current global economy, have great influence upon every aspect of the host countries. It is not only bound to related investment areas, but also includes development of host countries’market, culture, open degree and etc. However, MNCs will certainly receive corresponding affection from the above aspects as well, especially when they have to choose their ownership of invested subsidiaries. Here, we build a new theoretical framework to analyze the relationship between those factors and MNCs. As a result of our model derivation, we get the following suggestions:on one hand, the specific resources held by foreign investors and the host country, respectively, determine their contributions to the output, which differs as the resources are varied. The different degrees of contributions they made will finally result in their preferences of joint venture’s ownership structure; on the other hand, according to bargaining power theory, the specific resources owned by the two sides are exactly the significant determinants when they have to decide ownership structure through negotiation. So the specific resources not only affect their preferences of joint venture’s ownership structures, but also decide their bargaining power during the negotiations.It has been over30years since foreign investors entered the domestic market. The scale of foreign investment and the industries they are involved in have changed a lot comparing to the early age. The general amount of foreign investment tends to be increasing, though influenced by several economic crises, which are either regional or global. Meanwhile, as China is deepening its reform and opening up to the outside world, the ownership structures selected by foreign investors have taken corresponding changes. According to the amount of stocks held by foreign investors, we can divide the ownership structures of foreign direct investment in China into three types:Wholly Owned (>95%), Part Ownership (0%-95%) and Non contractual cooperative (<5%). At the early age of China’s reform and opening (1979～1987), FDI in China mainly chose non contractual cooperative; In1987, the13th National Party Congress was held to clarify the target of pushing forward the process of reform and opening up to the outside world. As a result, more foreign investment came to China and their preferences of ownership structure changed as well, from Sino-foreign cooperative joint venture to Sino-foreign equity joint venture. And the number of the latter reached its peak as70%of the total FDI enterprises in China, once. Then, since1997, foreign investors have been inclined to wholly fund their subsidiary in China. Correspondingly, the rate of Sino-foreign equity joint venture decreases from the peak point and now floats at20%. The wholly owned foreign enterprise becomes the main stream of FDI’s ownership structures.As we look into the changing process of FDI’s ownership structures in China, we may get the conclusion that, host country and foreign investors are the source of the factors which resulted in the process. Factors rising from the host country include: political and cultural factors, market factors and local enterprises factors; factors form foreign investors include:strategic planning factors, technology and brand factors and knowledge and experience factors. Each factor has its special influential mechanism on selection of ownership structure and is emphasized or weakened as the development of our reform and opening process. Thus, the ownership structures of FDI in China show the path of changing, from Sino-foreign cooperative joint venture to Sino-foreign equity joint venture, and now wholly foreign funded.Nowadays, we’re keeping perfecting our market-oriented system, domestically. The factors of foreign investors will be highlighted more frequently when they choose the ownership structure of their investment in China, comparing to factors rising from the host country years ago. FDI will continue to choose wholly owned subsidiaries in China based on current macro and micro environment. It’s hard to observe the consequences of the tendency-more wholly owned FDI in China, the positive side of which may include:strengthening the competitive situation in domestic market and alleviating employment pressure while the negative side may lie on that spillover effect reducing, monopoly and national economy safety risk.FDI in China has stepped into a new epoch. The change of the ownership structure is just one of the most obvious phenomena. In the long term, FDI is still an important method for us to develop domestic economy. So it’s necessary for us to study the process to tell positive side from negative one. Besides, we should properly revise relevant policies and statutes of utilizing FDI to ensure their contributions to our development.