Overseas Direct Investment And Manufacturing Industry Upgrade In China

Under the open economy condition, the inflow and outflow of a country’s capitalhas become an important way to integrate into the world economy. When Chinaimplemented the reform and opening policy in1978, China’s opening to outside wasgiven priority to “bringing in”. However, with China’s growing economic strength andthe in-evitable trend of world economic integration, the importance of "going out"begins to show. Overseas direct investment is not only our first step to “going out” butalso be the inevitable choice under the economic globalization. Our national leadersput forward the strategy of “going out” clearly at the end of1990’s, from then on,China’s foreign direct investment has entered a stage of rapid development. At thesame time, the study on ODI is increasing. According to the current situation, theresearch on Chinese foreign direct investment whether at home or abroad are growing,but on the whole,they are all still at the initial stage and mostly are qualitativeanalysis. The study of combining theory and empiricism is rare. The article isbeginning from the quantitative and qualitative perspective, combining theoretical andempirical analysis, adhering to Marx’s historical materialism, using the Marxdialectical method, focusing systemically on the relationship between foreign directinvestment and the upgrade of Chinese manufacturing.On the basis of the definition of overseas direct investment and industryupgrading, this paper illustrates the theory system about how overseas directinvestment prompt an industry realize upgrading. These theories including goosemodel theory, marginal industry expansion theory, product life cycle theory andMarx’s capital output and resource allocation theory constitute the basis of theempirical analysis. Through analyzing the development process and current status ofChinese overseas direct investment, the author has obtained positive and negativeeffects. Using a linear regression model analysis, the author found that there is apositive correlation between overseas direct investment and industry upgrading forevery1%increase in overseas direct investment last year, the non-farm level which isthe index of industry upgrading increase0.0485%. That means the overseas directinvestment can promote industry upgrading. The negative effect mainly manifestsdomestic industry hollowing risk by excessive blind overseas direct investment. At thesame time, this paper gives the example of home appliance industry. From theexisting dilemma of China’s household electrical appliance industry, the author analyzes the mechanism of how household electrical appliance achieves industrialupgrading through overseas direct investment. The mechanism includes marginalindustries gradient transfer and upstream industries seeking.This article also examines the experience of Japan’s overseas direct investment.Japan’s overseas direct investment started after the terrible experience of World WarII.Its fast initial speed and mature mechanism contributed to the development ofJapan’s total economy. This part states Japan’s foreign direct investment process,change, industry strategy choice. The measures they adopted including progressiveoverseas direct investment liberalization, encouragement policy that aims to enhancetheir international competitiveness of enterprises and overseas direct investmentsecurity system all are beneficial for us to reference and develop our own overseasdirect investment. The last part includes policy recommendations for how to help ourmanufacturing industry realize upgrading by developing overseas direct investment.The policy is mainly divided into two aspects: the government strategy and enterprisestrategy.