A Research On The Impact Of Foreign Investment On China's Overcapacity

Since the 1990 s,China's manufacturing industry had experienced three major rounds of overcapacity,namely 1998 to 2001,2003 to 2006,and 2009 till now.In 1998,the introduction of high-speed credit led to a large excess of production capacity in the textile and other industries,and there existed serious mismatches in resources,largescale loss of state-owned enterprises,and external shocks from the Asian financial crisis,and the country was facing a severe overcapacity situation.Around 2003,under the condition that the expansion of exports after China's accession to the WTO continued to drive domestic investment demand,and that the domestic economy also entered a new round of economic upswing,local governments and companies jointly promoted the continuing of investment booms,which eventually caused serious overcapacity situation.The third round of overcapacity which started from 2009 to the present stemmed from our country's economic stimulation plan after the 2008 financial crisis.This stimulation plan had also exacerbated China's overcapacity as it warmed up the economy.These rounds of capacity expansion experienced by our country has resulted that China's economic development is facing a severe situation.Based on the background of the excess production capacit y mentioned above,we noted that foreign investment in China has always maintained a relatively high growth momentum.While bringing development opportunities to China's economy,the accumulation of foreign capital in China's manufacturing industry laid a hidden danger for the emergence of excess capacity in China.Instead of only introducing domestic variables to study China's overcapacity,this paper studies the problem of China's overcapacity from the perspective of open economy,and focus on the influen ce of foreign capital on China's overcapacity.Through theoretical and empirical analysis,this paper concludes that foreign capital will not only influence the condition of excess capacity by increasing the production capability directly,but also influen ce the condition of excess capacity through crowding-in effect and technology spillover effect.Based on the analysis of the impact of foreign investment on excess capacity,this paper uses data from 35 industrial sectors in China from 2000 to 2014 to cond uct empirical tests from the perspective of the industry and from the perspective of sub-industries.The results show that under the overall industry-wide perspective,overcapacity has significant path-dependence characteristics,showing the “inertia” of o vercapacity as well as the increase in the proportion of foreign investment will increase the industry's overcapacity.From the perspective of sub-industries,there are significant differences in the impact of various variables on excess production capacit y.The increase in the proportion of foreign investment will exacerbate excess capacity in labor-intensive and capital-intensive industries whereas ease the excess capacity in knowledge and technology-intensive industries.Therefore,this paper suggests that China should solve the problem of overcapacity in China by deepening the management system of foreign capital,improving the quality and structure of foreign capital,and changing the policies for the introduction of foreign investment by local governme nts.