The Impact Of European Sovereign Debt Crisis On China’s FDI Inflow

The sovereign debt crisis occurred in Greece in the year 2009 with the influence of the world-wide financial crisis which was triggered by the US subprime crisis. Measures adopted by the European Central Bank and EU members did not work out in preventing the crisis from contagion. Other four members of the EU was also stricken by the SDC. The sovereign debt crisis not only had negative impact on the economy of GIIPS, but also influenced the other periphery and central countries in EU. The crisis had led to negative GDP growth, increased unemployment, decreased demand and other problems in EU. It also influenced other economies through international capital flow and trade. As the largest player of FDI outflow, the EU SDC will definitely influence the world FDI volume and pattern. China an EU are friendly cooperators in terms of economy and trade. Although China’s share in EU FDI outflow is relatively small, the FDI from EU is important for China. The change in EU FDI in China will have impact on Chinese Economy. Meanwhile, the FDI inflows from other parts of the world to China will be influenced to some extent. This article analyzes the mechanism through which the SDC influenced Chinese FDI inflow theoretically and the extent to which SDC influenced Chinese FDI inflow empirically. The panel data covers 13 years from 2000 to 2012.Firstly, I analyzed the direct and radical causes of EU sovereign debt crisis. Secondly, I analyzed the pattern of Chinese FDI inflow, the characteristics of EU FDI in China and the impact of SDC on Chinese FDI inflow through statistics description. Thirdly, I analyzed the mechanism through which SDC influenced Chinese FDI inflow. The market size of host country, the exchange rate, the trade pattern and liquidity of home country were considered about. Finally, I analyzed the extent of the influence through empirical studies.In conclusion, I think the EU sovereign debt crisis led to decrease of Chinese FDI inflow from the EU through the factors like market size and exchange rate. However, the FDI inflow from major Asian investors and some tax haven countries were not negatively influenced by the SDC. So, China’s policies in attracting FDI should focus on EU members. Much attention should be payed to improve hard and soft investment environment in China in the long run instead of tax reduction policies in the short run.