FDI Entry And Chinese Manufacturing Firms' Unit Labor Cost

In recent years,the overwhelming "Made in China" is seriously endangered by Chinese manufacturing firms' rapidly rising unit labor costs.Under the pressure of the ever-rising labor costs and the stagnant export market,Chinese manufacturing firms are on the edge of losing their traditional competitive advantages.While the reasons of the ever-rising trend of Chinese manufacturing firms' unit labor costs are complicated,we only tend to study the effect of FDI on Chinese manufacturing firms'unit labor costs in an open economy framework in the thesis.This thesis mainly consists of three parts,in Chapter five and six,we analyzed the FDI intensity and FDI pace's effects on the same industry Chinese manufacturing firms' unit labor costs by using the Chinese industrial enterprise database from 1998-2007;and in Chapter seven,we analyzed the FDI intensity's effect on the forward and backward industry Chinese manufacturing firms' unit labor costs by using the Chinese industrial enterprise database from 2002-2007.The main conclusions of this thesis are as follows.First of all,the FDI intensity has significantly positive effects on the same industry Chinese manufacturing firms'unit labor costs.This is caused by two reasons,on the one hand,the FDI intensity has significantly positive wage spillover effect on the same industry Chinese manufacturing firms;on the other hand,the FDI intensity has significantly negative technology spillover effect on the same industry Chinese manufacturing firms,which means the expansion of FDI directly drives down the added value per capita of Chinese manufacturing firms.Secondly,FDI pace negatively moderates the positive effects of the FDI intensity on the same industry Chinese manufacturing firms' unit labor costs.Which means that given the same FDI intensity,the faster the FDI pace is,the weaker the effects of FDI intensity on the same industry Chinese manufacturing firms' unit labor costs become.Thirdly,FDI intensity in the downstream industries has significantly negative effects on the upstream Chinese manufacturing firms' unit labor costs through backward linkages.However,this effect is far weaker compared with the effect of the FDI intensity on the same industry Chinese manufacturing firms'unit labor costs.Besides,FDI intensity in the upstream industries has no significant effects on the downstream Chinese manufacturing firms' unit labor costs through forward linkages.Based on the above conclusions,this thesis puts forward the following Policy Suggestions:First,the Chinese government at all levels should avoid the desperately hunger for more FDI,and pay more attention to the local firms' competition ability and the market order of every industry before open it more to the foreign capital.As to the foreign invested enterprises which have already operated in China,the Chinese government should strengthen its supervision and management ability,and prevent the foreign invested enterprises from becoming monopolies or abusing its monopolistic market power on local firms.Not all industries in China are ready to be opened up to FDI.If Chinese firms already have certain competitiveness in some industries,opening up and introducing more FDI might be helpful to stimulate the competition and boost the growth of this industry,while if the Chinese firms are far weaker than their foreign counterparts in some industries,opening up to FDI might only lead to strong foreign enterprises rapidly expanding as monopolistic market power in China,and crowding Chinese local firms to profitless marginal markets.Second,limiting the pace of inward FDI is not helpful to slow down or flatten the rising trend of Chinese manufacturing firms' unit labor costs.Above all,the most effective and important policy should be to excavate the foreign invested firms'technology spillover potential on their Chinese counterparts.Problems encountered in the opening up process should be resolved in the same process,and closing the door of inward FDI is not a wise option.Third,China's governments at all levels should notice that the main purposes of attracting foreign capital to China are not only limited to increase the internal market competitiveness,the more important purpose is to fully exploit the positive technology spillover effect of foreign invested firms on their upstream and downstream Chinese manufacturing cooperative firms.So,the Chinese governments at all levels should pay more attention to the upstream and downstream cooperative relationships between the incoming foreign invested firms and the local Chinese firms,when they are making inward foreign investment attracting plans.Usually the local Chinese firms could enjoy the positive technology spillover from their foreign invested cooperative firms,only if the local Chinese firms could supply the intermediate goods to their downstream foreign invested cooperative firms or to buy the intermediate goods produced by their upstream foreign invested cooperative firms.