Foreign Direct Investment in China

Foreign Direct Investment in China

Location Determinants, Investor Differences and Economic Impacts

Chunlai Chen

Foreign Direct Investment in China is one of the most comprehensive studies of FDI in China and provides a remarkable background of information on the evolution of China’s FDI policies over the last 30 years.

Chapter 3: Location Determinants of FDI and China’s Performance in Attracting FDI Inflows

Chunlai Chen

Subjects: asian studies, asian economics, economics and finance, asian economics, international economics, political economy, politics and public policy, political economy


INTRODUCTION During the past three decades, China has attracted a huge amount of FDI inflows. By the end of 2009, China had attracted a total of US$934 billion FDI inflows,1 making it the largest FDI recipient in the developing world. As a result, China’s share both in the world total FDI inflows and in the total FDI inflows into developing countries has increased dramatically from 2 per cent and 11 per cent in the 1980s to around 7 per cent and 25 per cent in the 1990s and 2000s respectively. China’s success in attracting FDI into its domestic economy has caused concerns in many other developing countries that China has attracted excessive FDI inflows into its domestic economy and that the huge amount of FDI inflows into China may represent a diversion of world FDI away from them. However, China is large, and large countries normally receive a large amount of FDI inflows. Has China really received excessive FDI inflows from the world, based on its economic and geographical characteristics? To answer this question we have to investigate the location determinants affecting FDI inflows into developing countries and establish an empirical norm of the magnitude of aggregate FDI inflows from all source countries into a developing host country. Against the empirical norm, we can investigate the relative performance of China and other developing countries in attracting FDI inflows and answer whether or not China has attracted excessive FDI inflows relative to its potential. Therefore, this chapter is designed...

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