Study On The Regional Selection Of FDI In Producer Service Industry Of China

As the producer service industry (hereinafter called the PS industry) acts as a high-professional and knowledge-intensive intermediate service industry, its inward foreign direct investment (FDI) is an important way to forward the international industrial transfer process and is playing a role in advancing the upgrade and adjustment of industrial structures. In the past 10 years or so, with its attractive open policy and great development potentials, China has become a hot land for the inward FDI of PS industry for it can promote the advancement and integration of the manufacturing sector in China. There are mainly three points of features of PS inward FDI in our country for a time. The first is the rapid growth of the PS inward FDI size. PS inward FDI flew from 5.56 billion US dollars in 2004 to 22.54 billion US dollars in 2013, with an average growth rate of 15.02%. The second is the comparatively small amount. During the year of 2004 to 2013, the highest level of the ratio of PS FDI to the fixed assets investment amount to less than 5%, and the lowest 3%, with a falling trend. The third is the concentrated and uneven distribution among regions. The amount of PS inward FDI in Eastern China is 20.5 billion US dollars, holding a share of about 91% of that of the whole nation, while the ratio in Middle-and-Western China is 9%. It is easily concluded that the comparatively small amount and uneven distribution among regions are becoming the two problems of our country in PS FDI. Therefore, the study on the regional selection mechanism in PS inward FDI of China is worthwhile finding the factors influencing the uneven distribution theoretically and then presenting suitable proposals to attract more PS inward FDI practically.In the theoretical aspect, there are a few bit of theories related to the PS inward FDI regional selection, though abundant of literatures at home and abroad in the area of inward FDI regional selection. The PS industry has its own attributes from the direct-related manufacturing industry, which, to some extent, makes the PS inward FDI regional selection a different one from that of manufacturing industry. The international foreign direct investment theory and the relevant regional selection theory are the two necessary ones to explain how the PS inward FDI distributes among regions in a given country. The traditional regional selection theories aim at the first and second industry and base on the hypotheses of complete competition market structure and the constant returns to scale. However, the New Economic Geography Theory (hereinafter called NEG) is based on the incomplete competition market structure and the increasing returns to scale, which is more realistic to portrait how the PS inward FDI scatters among regions.The general framework of the thesis is laid below. The first part introduces the background, the theoretical and practical significance of the research, the framework of the article and the innovation and shortage of the research. The second part reviews the fundamental thinking and innovations of the NEG, including Marshall’s theory of external economy, Samuelson’s "iceberg" trade cost and the cyclic accumulation theory, etc.. Then it comes to some models which Krugman created based on the above theories. Finally, the author made an attempt to explain the PS inward FDI regional selection as follows. The decline of information transmission cost which acts as the "iceberg" trade cost in NEG, intensifies the centripetal force of the inflows of PS enterprises on one hand, and on the other hand, it enhances the centrifugal force by deepening the competition among the PS enterprises. The manufacturing industry and its intermediate goods, PS industry, have the pecuniary externality of forward and backward correlation which affects the inflows of PS enterprises into one region. The technological externality of PS industry affects the inflows by the share of labor market and technological spillover. And last, the external economy and agglomeration effects work together to affect the inflows of PS enterprises through the cyclic accumulation effects.The third part depicts the features and problems of PS industry and its inward FDI of China with statistics and indicators as follows:the increasing size of PS market, the growingly important position in national economy, the uneven development of PS industry among regions; the rapid growing amount of PS inward FDI but unable to meet the development demand of PS industry, the uneven distribution of PS inward FDI among regions and difficult to agglomerate with the manufacturing FDI in regions. The fourth part analyses how and which factors affect the PS FDI regional selection in the east, mid-west and the whole country with econometric method. It turns out that the NEG factors could almost explain the PS FDI regional selection in area of the whole; for the east, FDI agglomeration, externality and other factors have an obvious influence on the PS FDI regional selection; for the mid-west, the information level is the only obviously-affecting factors because the PS grows in low level and the PS sector in manufacturing firms does not deepen and could not be divided out of the manufacturing firms. The fifth part raises some relevant proposals on the PS FDI attracting policy due to the different factors and problems existing in the two regions. And the last part concludes the whole thesis based on the previous research.The creative points of the thesis lie in the theoretical one and the empirical analytical one. For the theoretical one, the author analyzed the factors affecting the PS FDI regional selection with the NEG theories. For the empirical analytical one, the author used the statistics of the whole nation, the east and the mid-west parts of China, to make the econometric analysis on the PS FDI regional selection choice. However, there are weak points. Firstly, the thesis only applies the basic ideas and theories of NEG to analyze the location choice of PS FDI, and cannot make further research and analysis on the other factors. Secondly, it is not very ideal for the industry to produce service industry. And finally, because of the subjectivity of the representative index of the variables, it may affect the applicability and universality of the results.