On Relationship Between Processing Trade And FDI In China From The Perspective Of Intra-product Division

In the development of China's foreign economy, processing trade and foreign direct investment play a key role. Not only the overall development trend of processing trade and foreign direct investment is synchronous, the distribution of foreign direct investment in the industry also affects the good structure of processing trade. With the influx of foreign direct investment, processing trade become the first trade pattern in China's foreign trade since 1994. Capital-intensive product's export and intermediate input's imports in the manner of processing trade have greatly increased, which have important impact on the China's foreign economic development and industrial structure. Actually, China engaged in labor-intensive production processes of the capital-intensive products. As the labor division is the basis for trade and investment, the various links between processing trade and foreign direct investment can not be separated from China's participation in international labor division.Therefore, this paper selected the perspective of intra-product division to study the relationship between China's processing trade and foreign direct investment .First, this paper analysis the relationship between processing trade and foreign direct investment in a systematic way by using extended Kiyoshi Kojima model and global value chain theory .Second, from the following three aspects to describe and statistic the relationship between China's processing trade and foreign direct investment: the overall development trends, product / industry distribution and trade flows to / from the country . And analyses FDI's positive impact on the processing trade, and its problems; on the basis of the theoretical analysis and descriptive statistics, this article selects China's processing trade and foreign direct investment data from1985 to 2008, to do time sequence analyses. The results show that the foreign direct investment facilitated the development of processing trade in China. Finally, in order to settle issues as domestic enterprises at a disadvantage in processing trade, processing trade export orientation and foreign capital sources are too excessive concentration and other issues. The paper will raises some positive suggestions to promote China's foreign economic steady and healthy development.