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 5: Provincial Characteristics and the FDI Location Decision within China

Chunlai Chen

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


INTRODUCTION In the previous chapters, we have examined the evolving changes of China’s FDI policies and the growth pattern of FDI inflows into China during the past three decades. We find that the gradual liberalization of FDI policies since 1979 and the government’s commitment for further opening up after China’s accession to the WTO have greatly improved the investment environment in China. Foreign direct investment inflows into China have increased rapidly since the early 1990s and especially after China’s accession to the WTO in 2001. However, in terms of regional distribution, FDI inflows into China’s provinces vary greatly. As a result, the provincial distribution of FDI inflows into China has been very uneven, with the eastern region provinces accounting for nearly 90 per cent of the total. This raises the questions of what are the causes of the uneven provincial distribution of FDI inflows into China, what provincial characteristics determine the FDI location decisions within China, and what is the relative attractiveness for FDI of China’s 31 mainland provinces given their specific provincial characteristics? This chapter aims to investigate and answer these questions. Using the same analytical framework as was established in Chapter 3, we argue for a set of source countries, the provincial differences in FDI inflows from the world are determined by the differences in location factors of each individual province. Consequently, at this level of analysis we take each individual province as the basic potential destination for hosting FDI inflows from all source countries in the world...

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