The Influence of Fdi for China During the Reform Era

Topics: Investment, International trade, Macroeconomics Pages: 3 (1158 words) Published: September 16, 2013
Zhiyao He (Alexandra)/ ID: 536513
First Draft of Project 2
As Harvard professor Dani Rodrik puts it, “China’s economy has expanded by leaps and bounds, at historically unprecedented rates that few economists would have found plausible or feasible ex ante.” Within 30 years, China’s economy has jumped from the last echelon to the top list of the world. China has transformed into a global trade power. In this process, Foreign Direct Investment (FDI) participated a lot in the country’s recreation and reproduction process. Regarding Foreign Direct Investment (FDI), there have been different voices and opinion. The mainstream argues that FDI has contributed significantly to China’s economic development through capital formation, export expansion, technology transfer, and the transformation of the economic structures and institutions. However, others argue that the benefits of FDI are just partial. While it improved allocative efficiency, it worsened productive efficiency. But overall, FDI may not have solely the positive effect, it is still a crucial source of China’s expansion in foreign trade, at least it has opened doors opportunities of interacting with the world economy for China during reform era. More evidences and explanations are presented as follows. Firstly, the increase of FDI has directly increased the volume of export and import of China. Since 1980s, with the international industrial structural change, foreign investors gradually increased investment in China. In 2002, the first year after China’s accession to the World Trade Organization (WTO), it surpassed the United States of America to become the world’s largest FDI-recipient. And the 2010 figure accounted for 18% of the total flows to all developing economies (data from United Nations Conference on Trade and Development, World Investment Report, various issues). From 1983 to 2003, the increase rate of FDI is 18.2%. At the same time, China’s volume of processing export increased 27.3% and 23.8% for...
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