China’s Experience with Foreign Direct Investment: Lessons for Developing Economies

Abstract

Since 1993 China has become the largest recipient country of FDI among all developing countries, and in six consecutive years from 1993 to 1998 it was the second largest recipient country in the world, after only the USA. In 2002 it displaced the US as the top recipient of FDI in the world.¹ Its total FDI inflow in 2003 was $53.5 billion. By June 2003 the total number of foreign projects approved was over 443,000, the cumulative amount of contracted FDI was US$879 billion and the cumulative amount of actual or realized FDI was US$478 billion. By September 2001, about 180,000 foreign invested firms (hereafter ‘foreign firms’) employed 21 million Chinese workers, nearly 10 per cent of the labour force in China’s urban areas. The roles played by foreign firms in the Chinese economy from 1991 to 2000 are illustrated in Table 3.1.² Realized FDI as a fraction of China’s total investment in fixed assets rose from a little over 4 per cent in 1991 to 17.1 per cent in 1994, when China adopted tight fiscal and monetary policies, but fell back in subsequent years and was 11.2 per cent in 1999. The ratio of investment in fixed assets by foreign firms to total investment in fixed assets rose from 5.3 per cent in 1992 to 10.5 per cent in 1998.

An earlier version of this chapter was presented at the ‘Conference on Foreign Direct Investment: Opportunities and Challenges for Cambodia, Laos and Vietnam’ in Hanoi, on 16–17 August 2002. I would like to thank Professor Shujiro Urata of Waseda University and an anonymous referee for their helpful comments and suggestions.