A Study On The Industrial Hollowing-out Effect Of China’s Manufacturing Industry’s OFDI

Affected by the international financial crisis in 2008,China will face more competition from the high-end chains of value chain transferring back to the developed countries and the low-end chains transferring to other developing countries due to the rising costs of domestic manufacturing and the re-industrialization strategies implemented by developed countries such as Europe and the United States.Meanwhile the outward foreign direct investment(OFDI)of manufacturing develops rapidly.From 2003 to 2016,the average annual growth of OFDI in manufacturing was 32.65%.Although some scholars insist that manufacturing OFDI will promote industrial upgrading by exploiting overseas markets,acquiring scarce elements,optimizing resource allocation,and learning advanced technologies,some experience of western countries shows that manufacturing OFDI may cause hollowing out of the industry.So will the rapid growth of OFDI in the manufacturing exacerbate the initial hollowing out of the domestic industry under the background that China has not completely completed industrialization.This paper try to construct the theoretical framework of the effect of manufacturing OFDI on the hollowing out,revealing the internal relationship between OFDI and hollowness based on empirical research using panel data of china’s industrial economy.Firstly,this paper analyzes the effect of manufacturing OFDI on the hollowing out based on the theory of OFDI and hollowing out.Both the industrial structure evolution theory,industrial transfer gap theory,industrial organization relationship theory or industrial element misplacement theory consider that industry has the potential to develop into hollowness.When the industrial capital output causes the phenomenon like a large number of domestic investment outflows,export substitution,foreign trade deficits and even unbalanced industrial organization structure,the manufacturing industry in the home country will experience slowdown in technological progress,decline in production capacity,and shrinking in absolute scale of employment and output value,which will lead to the imbalance between theproduction and non-material production and inducing the hollowing out.Secondly,industry development has shown the characteristics of hollowing out under the background of the rapid expansion of China’s manufacturing OFDI.On the one hand,the scale of China’s manufacturing OFDI has continuously expanded with the middle and low-end production chains transferring to developing countries rapidly,the effectiveness of technology-based OFDI being tiny and irrational investment being obvious.On the other hand,the slowdown in the growth rate of the manufacturing,the declining economic efficiency,the lack of competitive power,and the weakening of the main business indicate that the status quo of China’s manufacturing is characterized by “hollowing out”.Compared with the United States,Japan,Britain and other developed countries,China’s manufacturing industry will face more risk due to lacking own core technology when transferring manufacturing to other countries.Thirdly,this paper manually sorted out the number of manufacturing OFDI projects to calculate the amount of OFDI in manufacturing depending on the proportion and constructed it from the perspective of scale,efficiency,competitiveness,and structure.The grey correlation analysis based on 29 provinces manufacturing data from 2003 to 2016 shows that: OFDI is closely related to the hollowing out in east area;The influence of manufacturing OFDI on the hollowing out is affected by the original industrial structure.On this basis,this paper selected 22 provinces with high degree of correlation between OFDI and hollowing out by cluster analysis,and analyzed the dynamic characteristics of the hollowing out effect using panel smooth transition research.The analysis shows that: the influence of manufacturing OFDI on structure imbalance from being not significant to significant once OFDI intensity exceeds the threshold value,while the influence on scale and competitiveness hollowing out changed from the obvious weakening to the obvious enhancement,and the relieving effect of efficiency hollowing out tends to weaken after OFDI exceeding the threshold value;From the perspective of control variables,utilization of IFDI and increase in demand are helpful to prevent hollowing out while environmental regulation and house price inflation have the opposite effect.Theimpact of financial development and costs rising turn from inhibition to induction.Finally,this study proposes several suggestions for the development of China’s manufacturing OFDI and the prevention of hollowing out: Promote OFDI in manufacturing steadily based on the actual needs of industrial upgrading;Stabilize the use of foreign capital and increase the quality of it;Improve the domestic manufacturing environment and strengthen market regulation;Implement the strategy of ’improving quality’ and ease the downward pressure on economy.