The Effect Of Preferential Policy On China’s Regional FDI

Since1950s, the research on FDI has become a hot academic topic at home andabroad. There is a rapid growth of FDI in China and China has become an importantcountry of FDI inflow. However, there is a strong uneven FDI distribution amongdifferent regions in China. The general amount and growth rate are larger than those inmiddle and western areas, which challenge the target of regional harmoniousdevelopment. From the status of regional distribution differences in Chinese FDI, thispaper studies the influence of preferential policy on FDI location selection and providespractical policy suggestion to shrink regional differences.This paper combines the theoretical and empirical research methods and makes adescription and analysis of the FDI distribution situation among31provinces. Then itgets a better understanding of the regional distribution differences status of Chinese FDIunder preferential policy effect. On the one hand, FDI regional distribution difference isdetermined by the capital character of FDI itself. On the other hand, it is closely relatedto long-term declining policy. Since the open and reform, the preferential attractingcapital policy which China has implemented follows the path of point to line and then tothe surface from the eastern to the western. As a result, it forms a distribution pattern ofeastern high and western low in FDI. This distribution has generated a long-terminfluence on sustainable development in regional economy. Therefore, it is of greatvalue for the deep research on FDI from the policy angel. Theologically, it starts fromthe angle of cost, market and policy and establishes a theoretical model of preferentialpolicy index and FDI area distribution and makes a deep research on the relevancemechanism. The investor makes investment decision according to the cost and incomemodel and the implement of preferential policy changes the condition of foreigninvestors’ decision. Hence, there is a vital influence of Chinese policy preference onFDI regional distribution. On the basis of policy signal theory under asymmetricinformation hypothesis, with deepen of open and reform process. The transferring roleof preferential policy as a signal is gradually reducing and its influence on FDI locationchoice is decreasing inevitably. Empirically, the establishment of preferential policyindex complicatedly reflects the long-term preference attracting policy in China andexplains the relevance mechanism of preferential policy on FDI location choice. Thetest results show that with the growth of economic development, the role of preferential policy on attracting FDI is gradually reducing. Besides, other factors such as educationlevels have a off-set function on the implement of preferential policy effect. Therefore,in middle and western areas, the policy will still act its promoting role.Based on the above research, it proposes long-term and sustainable suggestions toattract FDI inflow. Various regions should adopt differential preferential policy. Firstly,eastern areas should release the intervention power of policy and exert the role ofmarket mechanism in allocating resources. Secondly, the middle and western areasshould speed up at frustration establishment and exert the attracting of preferentialpolicy on FDI. Lastly, the three regions should strengthen cooperation and drive thereasonable distribution of FDI and realizes the target of regional harmoniousdevelopment eventually.