The Quality And Quantity Of Foreign Direct Investment In China

Under the background of economic globalization,Foreign Direct Investment(FDI)has played a vital role in the economic growth and opening process of China.China has undoubtedly become a main country of FDI inflow.However,fiscal decentralization and political centralization are both exist in China,and there are some defects in the assessment mechanism of local government officials,which leads to the FDI competition among local governments to stimulate local economic growth.As a more flexible,timely,and more operational fiscal preferential policy,tax incentives have become the most widely used competitive tool for local governments in FDI competition.In addition,due to its favorable geographical location and the convenience of being supported by policies for a long time,the eastern coastal areas of China are more developed in terms of both quantity and quality than inland areas.Therefore,this paper studies the impacts of the local government tax competition on the FDI flow and quality,and further explores the different effects of tax competition on the FDI between the eastern coastal areas and inland areas of China.After consulting and combing relevant literature,this paper analyzes the motivation of local government FDI competition,summarizes the development and present situation of China's tax competition.Then separately conducts the overall situation of China's FDI flow and quality,and the different conditions between coastal and inland areas.Next,through empirical analysis,we build the model and make regression analysis by using one-step system GMM method.Finally,conclusions are drawn from the results of statistical analysis and empirical analysis,then to put forward policy suggestions.This study finds that tax competition will increase the quantity of FDI and reduce the quality at the same time.In addition,the sensitivity of inland areas to tax competition is higher than that of the eastern coastal areas.Tax competition cannot increase the flow and quality of FDI in coastal areas,but promoting FDI inflows while reducing the quality of FDI in the inland areas.The reason is that the eastern region has the advantages of large scale of economic,convenient transportation and higher labor level,so the competition of FDI is more comprehensive and the role of tax rate is not significant.In addition,the foreign capital enterprises in the inland areas are relatively small,and their technology and R&D ability are weak.These small and medium scale enterprises are more vulnerable to the effect of tax rate,and are more likely to enter and exit the market.Based on the research conclusion,we should stop this vicious tax competition that only focuses on FDI inflow while neglects quality.And we have to make better use of tax policy tool.At the end of this paper,combined with the development requirements of our new era,three points of policy thinking are put forward for reference.