Research On The Effect Of FDI In China’s Service Industry

Since reform and opening up, China has made a remarkable achievement in attracting foreign investment. In recent years, FDI in service industry has gradually exceeded manufacturing FDI in attracting foreign capital. However, in China, compared with manufacturing industry, services industry’s overall level of openness is relatively low, and it’s also much less related with foreign capital. Therefore, the academic circle has not yet conducted much systematically or comprehensive study on the spillover effect of FDI in service industry. As one of the major service FDI inflow country, making the best use of foreign capital will become a decisive factor that affects China’s economic development.From the general theory of FDI spillover effects, this paper focuses on the effect of FDI in service industry, then discusses the mechanism of service industry FDI’s impact on regional technology progress and international competitiveness, i.e."technology spillover effect" and "competition exclusion effect". On this basis, this paper analyzes the favorable and unfavorable determinants on attracting FDI in service, with the purpose of guiding and utilizing the positive effect of FDI in services, and further promoting the level of service in our economy.The main conclusions of this paper are as follows:The technological spillover effect of foreign capital in service industry does exist, and it can effectively improve China’s technology progress and regionals total factor productivity. But the technology spillover effect also presents the regional differences, characterized by the technology effect in eastern region by significantly higher than Midwest, which may intensify the differences between regions; the service’s competition exclusion effect has nonlinear characteristics, which means the size of foreign investment must be controlled within a reasonable range, otherwise the impact of foreign capital on the international competitiveness of the service industry will no longer be positive. Meanwhile, the favorable determinants in attract foreign FDI in service industry are the level of regional human capital, the level of regional legal system,the level of service industry development and the level of labor marketization;and the unfavorable determinants is the over-intervene by government on economy. This paper finally raises suggestions on China’s attraction of FDI in service industry from the level of the coordination of international service trade, the promotion of technology progress and the presentation of competition exclusion effect in FDI in service industry.