The Economic Analysis Of FDI Policy In China

The policies of foreign direct investment (FDI) in China represent significant characteristics of vast amount, various sources and inter-policy overlapping. On one hand, it is difficult to operate precisely in practice; on the other hand, it is not convenient to analyze and understand them systematically. This paper presents a systematical study on the policies of FDI in China, analyzing the industrial, regional and enterprise policies respectively. Applying the theories of FDI, comparative advantage, competitive advantage and new economic growth theory, this paper verifies the rationality and effectiveness of the current FDI policies of China with normative, historical, comparative and empirical analysis methods. Based on such studies, the paper also presents some concrete suggestions to the modifications of FDI policies and potential legislation in China.Chapter 1 surveys the theories related to the analysis of FDI policies. Firstly, the paper reviews various schools of theories on FDI policies, which could be categorized into several classes according to the differences of their analysis on the aims of FDI by transnational corporations:the theory of monopolistic advantage based on industrial organization hypothesis, the theory of product cycle and marginal industries based on international trade hypothesis, the theory of internalization based on the transaction cost theory, the eclectic theory of international production and the location theory of FDI which focuses on the location choices of transnational corporations. Secondly, the paper introduces the theory of comparative advantage and the theory of competitive advantage. The theory of comparative advantage implies that, only taking advantage of one's own comparative superior resources, could the policies benefit the development of economy and obtain competitive advantages. The theory of competitive advantage explains the causes of the continuous booming of international economies. It emphasizes the transformation and extension from low level advantages of resources to the advantages of distinction, which is a critical way of forming national competitive advantages. The government could influence the four primary elements of the Diamond through policies and establish the system of national competitive advantages. Finally, the paper briefly introduces the theory of new economic growth. Both the theory of new economic growth and the theory of internalization emphasize the roles of knowledge production and human resources in the economic growth. Its theory on the driving force of economic growth and regional economic differences has substantial impact on the establishment of FDI policies.Chapter 2 firstly reviews the recent development of international investment agreements, the liberalization in the international investment agreements and the development of bilateral investment treaties of promotion and protection in China. Secondly, it analyzes the tension between the economic sovereignty of the host country and the liberalization in the international investment agreements. And then it comes to the conclusion that it's the certain content of the economic sovereignty of China that whether or in which period to grant national treatment to the foreign investment or the foreign investor, and could be chosen and adjusted by China, based on the economy and industrial structure.The article suggests some concrete industry policies of agriculture, industry and service industry in China respectively. The FDI policies of agriculture should be focused on the following perspectives:improving the industrialization and R&D capabilities, enlarging the scale of the agricultural enterprises and inducing the proper nation-owned manufactory enterprises to transform, providing more guidance to orient FDI in China to the low-profit planting industry and farm practices in animal husbandry and aquaculture, continuing to promote the intensive processing of agricultural products and comprehensive developing industry, increasing the added value of the agricultural product and agricultural efficiency.The FDI policies of industry should be focused on speeding up the industrial restructure, promoting the reform of the state-owned enterprises and raising the overall level to maintain a leaping development. The FDI policies of service industry should be focused on accelerating the development of manufactory service industry, actively and steadily opening up the service industry areas to the foreign investors based on the condition and character of the service industry in China while strictly fulfilling the obligations concluded in the protocol that China has promised when entered the WTO, developing the modern service industry in Beijing and Shanghai by the means of economic agglomeration and industries cluster strategies to form various levels in the service industry structure suitable for the international large-scale cities'development and make use of the scale-economy effect and example effect to promote the overall level of service industry in China.Chapter 3 carries out an economic analysis of regional FDI policy in China. The dual structure of the east and west area in China's regional economic development could be explained by the Reform and Opening-up policy in a large scale. For the east coast area, the processing manufacturing industry dominates the industry structure in the "Zhujiang Delta ", the regional FDI policy needs to be adjusted to guide the large scale enterprises to innovate the existing technology, improve the technological levels and R & D capabilities, and strive to become high level suppliers or from OEM to OBM. The region's industrial upgrading could be ultimately maintained through the industrial specialization and the development in the cooperation between enterprises. Basing on the existing regional industries economic agglomeration, the priorities of the regional FDI policy in "Yangtze River Delta" should be given to the specialization between Shanghai and other two provinces in the FDI programs, making use of the initial advantage of regional industries economic agglomeration and reinforcement the prior and after manufacturing effects so as to achieve economic development and improve welfare through the economy of scale.Through reviewing the concrete FDI policies and measures in the middle and western area in China since the foundation of People's Republic of China, especially the period after the Western Development policy, we analyze the differences of the capital flow, human capital stock and market process between western area and eastern coast and suggest that the FDI policies adjustments in the middle and western area should focus on the following perspectives:(a) increasing the capital flows through various sources including the FDI and fiscal approach, (b) increasing the education capital and improving the education institution through FDI, varying the professional education and the R&D fund sources, (c) reinforcing the FDI effect on the capital stock and technology spill-off through optimizing the FDI sources, vigorously enlarging the investment scale from developed countries with high technology and management, such as EU, America and Japan, (d) maintaining the regional industry gradient transference through developing comparative advantage, non-state-owned economy and strengthening the market vitality.During the evolutionary reform, local governments carry out the regional FDI policies and measures with dual aims of maximizing the local fiscal revenue and political support. The difference of the reform objectives between the local government and the central government which is the system provider contributes to the distortion of the reform, which is the imperfection between the willing and the real providing, and the reduction of the real reform gains. Inspired by the objection of maximizing the local fiscal revenue, the local government has been a connection tier and transporting channels between the enterprises, which is the micro innovation subjects, and the central government since the fiscal reform, in order to acquire the system innovation chance favoring the local development and preference in the regional FDI policies.Chapter 3 carries out an economic analysis of FDI enterprise policy in China. Regulations of the proportion from the foreign investors constitute a vital part of host country's FDI policy. The regulations related to the foreign investors'share in China mainly stipulated in the verification and registration of the foreign-invested enterprises and the statistics of the FDI in China. The regulation taking the certain foreign investors'share as the condition of granting the preference treatment should be diluted though it made some historical sense, in order to maintain the transition of the FDI objection from the quantity to the quality. The statistics of FDI in China should resort to the international general conception and statistic method of FDI gradually to improve the all-scope FDI statistic system in China and provide the accurate, comparative and reliable data for the FDI policy. The article analyzes the law-abidingness utility function of the foreign-invested enterprises and the administrative agents, and suggests that two aspects should be paid attention to for raising the effect of the self-disciplined mechanism. The first part comes to the strength of the scale and depth of the administrative regulations and improvement of the statutory level to decrease the loopholes. The second part goes to the intensification of ideological and ethics construction, raising the level of the social ideological level to decrease the free-rider, moral hazard and adverse selection. Administrative litigation constitutes a vital part of the foreign-invested enterprises' remedy mechanism. Concerning that the Administrative litigation might advance the institutional reform, the litigation mechanism should take more consideration of the foreign-invested enterprises'litigation cost and utility.