Western China International Direct Investment, Absorptive Capacity Study

Since the end of 1970s, especially in the 1990s, Foreign Direct Investment(FDI) in large quantities poured into China, which made China become one of the most importing FDI countries. The attracting of FDI has greatly promoted the formation of our country's capital especially the human capital, upgraded the industrial structure, improved the competitiveness of Hi-Tech products and accelerated the increase of GDP. However, almost 87% of the FDI imported to China were assembled in the east of China while only 4% in the west. Furthermore, the quality of FDI imported into the west is much lower than that into the east, which didn't do much good to the upgrading of the western industrial structure and the exportation. Many researches show that it's the FDI that enlarged the development gap between the East and the West. Why did this happen? What determines the destination, flow and spill-over effect of FDI? How will the West upgrade its industrial structure to import more FDI? As to the national development of FDI what is the significance of improving the competitiveness of FDI in the West? This paper will try to solve all the problems above. Based on the analysis of the absorptive capacity and the theory of FDI, the author makes a further development on the theory of the absorptive capacity and divides the regional absorptive capacity for FDI (RAC) into the attracting capacity (AC), the utilizing capacity (UC) and the spilling capacity(SC), then puts the forming mechanism of RAC, the structural effect and the internal relationship in the growing stage as a hypothesis. On the basis of the hypothesis the author also sets up an evaluation model of RAC and the corresponding evaluating indices system which builds up the theory on analyzing and solving the problem of Western RAC. Firstly, with the method of empirical analysis and the correlation test, the paper analyzes the RAC in 31 provinces (or cities) and the reliability of the hypothesis and the indices system. Secondly, the paper analyzes the factors determining the formation of western FDI. Thirdly, through the dynamic economic analysis of China's regional FDI competitiveness for FDI, the paper analyzes some problems such as the stage of China's regional FDI competitiveness, structural stability, external driving force, initial conditions and policy sensitivity, etc. Research shows that it's UC and SC that result in the lower-level RAC structure. The western dominating resources such as mineral resources, waterpower, lower labor force, can't merge with the FDI, to some extent which diminishes the western RAC. The lower capacity of technological innovation not only diminishes the western attracting capacity for FDI, especially R&D, but also influences the utilization capacity for FDI. The industries which FDI invested in didn't meet with the western demands. Some dominating industries in the western areas aren't in the focus of the FDI. The immaturity of machine manufacturing industry especially the Hi-Tech industry can hardly form a copulate resource-supply system, which curbed the efficient absorption and spreading of FDI in the western areas. The western inferiority in the FDI competitive environment can't give the rein to the RAC. Moreover, the lack of geographical advantages and the lower foreign investment capacity of neighboring countries lead to the lower RAC in the western areas. The econometric model shows that among all the factors, its GDP and the development level of Hi-Tech that determine the RAC. The economic development level and market scale also obviously curbed the western absorptive capacity. The immaturity of western Hi-Tech industry results in the lower UC and the UC, which brings about technological threshold. The research also shows that China's regional competitive system for FDI is sensitive to the changes of western FDI. The preferential policy can enlarge the quantity of western FDI and stimulate the western economic development. On one hand, the competitions of the East, the Center and the West of China have reached the development stage matching with their own RAC and the steady competitive structures have been set up; on the other hand, the preferential policy for the western FDI will bring out obvious external effect to the middle and the east of China. So the middle and the east of China will benefit from the spillover effect of the preferential policy for the western FDI, which is especially obvious in the east. The problem of the western RAC reflects the difference of economic development in the western region. For western regions, the primary task is to improve the RAC, not to strive to formulate the preferential polices which have been proved not to work very well. The paper concludes that in order to improve the western RAC, the western regions should take good use of the support of the fiscal policy, focus on the R&D capacity of western enterprises, take the building-up of Hi-Tech development zones as a breakthrough and base on the formation and acquisition of human resources. In order to develop its economy the western regions should upgrade the industrial structure, accumulate the human capital, improve UC and SC for FDI and realize the upgrading of the structure of the western ARC. In contrast with other domestic and foreign research, this paper has its own characteristics. Firstly, it extends the definition of absorptive capacity. Based on the subdivision of the factors which consists of ARC, the paper proclaims the problem of RAC structure and its improvement. Secondly, with the use of the theory of complexity, it tries to conclude the nonlinear mechanism which forms the RAC, the hypercycle mechanism and the Echo Model of complex adaptive systems(CAS) determined by the location of Trans-national corporations. Thirdly, it analyzes the relationship between the RAC and the competition, and then concludes the mechanism which transfers RAC into the competition. Fourthly, it sets up an indices system which evaluates the RAC and RAC structural difference to provide scientific solutions to the problem of the western RAC. Fifthly, the paper applies the econometric way to testify the hypothesis and grade the level of the RAC. Meanwhile, it makes a further analysis on the regional competitive system, western FDI-GDP dynamic system, the system of FDI technology transfer and the spreading system with the method of dynamic economics.