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Research on Tendency of FDI Being Single Capital in China

FDI increases rapidly and plays a very important role in China market reform and economic development since 1978. At the same time, FDI appears new features and tendency that MNCs intend to adopt solely foreign-owned mode, especially since
Submitted On: 04-01-2010 | Views:	Article Tools:

FDI increases rapidly and plays a very important role in China market reform and economic development since 1978. At the same time, FDI appears new features and tendency that MNCs intend to adopt solely foreign-owned mode, especially since China became WTO membership. The reasons for this organizational tendency and its possible impacts on China economy have created a lot of literatures and arguments. The importance of an analytical study on this trend locates in the possibility of its side-effect which is drawing attention to and host countries have to face this challenge. Research on this trend will be helpful to make some competitive strategies to obtain benefits from it and reduce its cost simultaneously.First of all, the paper introduces research background, perspectives, methods and structure. The paper brings forward the opinion at the same time that the trend of FDI being single capital perhaps isn't worldwide phenomenon. Relieving the restriction for solely foreign-owned mode doesn't means that the trend will happen. China's regulation reformation is the precondition of the trend, the trend appears because of many factors' impact. In the case that the restriction for foreign capital is increasingly relieved, many factors' impact induces the trend.Secondly, after analyzing the way to realize the trend of FDI being single capital, a theoretical model is set up in the paper and empirical study based on provincial panel data from 1996-2005 finds that absorptive capacity, measured by human capital, is one of the most important motive to the trend of FDI being single capital. Among others, market scale and the degree of marketization have significant positive effects. Therefore, with the development of Chinese economy, the larger the market scale and the more marketizing it is, the more FDI become single capital. Since there are differences among east, middle and west areas in China that may lead to differences for the FDI organizational trend, the further analysis by areas is explored. As a result, the hypothesis is accepted by east and mid areas but illegibility to the west of China, we give it theoretical explanation.Finally, the paper also analyzes the impact of tendency that MNCs intend to adopt solely foreign-owned mode on China Economy and give some suggestion for it.

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