Division Report: Size and Scope of FDI
This division covers the history and volume of foreign direct investment (FDI) within the People’s Republic of China, as well as some of its implications in China and how said implications relate to FDI in other countries. Foreign direct investment has become a crucial component of the Chinese economy in recent decades, and it is therefore crucial that the raw data regarding FDI is compiled and analyzed accordingly.
The data and analysis in question has shown a remarkable relationship between FDI and the health of the Chinese economy as a whole. By the year 2003, China had absorbed more than 500 billion USD in foreign direct investments, an incredible development considering Mao Zedong had died less than forty years prior. More than 40 billion USD in FDI was flowing into China by 2000, a figure that has continued to increase; in 2019, inflow reached a value of 137 billion USD. In terms of how FDI has been divided by industry, the manufacturing sector receives more than all others put together, with nearly 60 percent of FDI allocated to this part of the Chinese economy. Real estate (24 percent) and distribution (6 percent) comprise the majority of the remaining destinations of foreign direct investment. In addition, more than 80 percent of FDI in China is “greenfield investments”: the creation of subsidiaries in China by foreign-owned enterprises. China’s tremendous status as a host of foreign investment also stands out; research has found that despite having many similar circumstances, India has not enjoyed the stronger correlation between FDI inflows and GDP growth found in China.
From this information, we can reasonably conclude that the dominance of foreign direct investment in the Chinese economy since the leadership of Deng Xiaoping has contributed to the rapid growth of China’s GDP, strengthened financial infrastructure, improved technological capabilities, and propelled China to paramount status in international trade and diplomacy. The trend toward open and free markets since the late stages of the 20th century has entered force in China with full effect, and the difference in economic growth and prestige can be linked to the success of the FDI experiment. In the country’s eastern coastal provinces, which receive nearly nine-tenths of China’s FDI inflows, living standards have improved rapidly since the 1980s, reaching a level comparable to much of Western Europe and the United States. Rural China, however, receives relatively little in comparison, and fails to achieve the tremendous economic success of the eastern provinces with improved infrastructure and freer markets.
However, not all is rosy in regards to foreign direct investment; for example, technological advancement has been hindered by foreign investors’ dominance over intellectual property rights, restricting the ability of Chinese domestic industries to grow in their own right. But China’s prosperity at large has been significantly bolstered by the introduction of FDI. Since the final two decades of the 20th century, China has seen unprecedented economic growth, powering it to the status of a leader in global trade and international diplomacy. The FDI experiment has paid off to an extent unlike all others, succeeding in China in a manner that even other emerging economies envy. The data seems to suggest that FDI will continue to play a dominant role in China’s economy for the foreseeable future, continuing to grow with an ever-expanding presence and impact. With so much gained already, it will be curious to see whether this prediction holds true for the Chinese economy and Beijing’s status in an increasingly connected world.
