FDI Up. With Chinese Charateristics.

Related entries: Economy, General, Investment

While the growth may not be as headline-grabbing as those about trade or stock markets, People’s Daily has reported on growth in foreign direct investment (not including financial sector investment) in the first 4 months of the year:

    “China’s foreign direct investment (FDI) increased over 10 percent year-on-year in the first four months of 2007 despite concerns that higher corporate income tax rates might affect the inflow”.

The January to April figures include:

    • Total FDI: US$20.4 billion, up 10.2% (the April rise was 5.5.% with a total of US$4.47 billion)

    • 12,349 foreign-invested enterprises in the past four months, down 2.29%

It also noted that 2006 FDI was US$63 billion (not including financial FDI), up from US$60.3 billion in 2005 and US$60.6 billion in 2004.

It is noted that investment in the service sector, including “transportation, computer services, distribution, tourism, architecture and financial services” is increasingly important, and that government policy is guiding investors to wards value-added manufacturing and the developing areas of western China.

The China Economics Blog carries an interesting post that looks at why China attracts so much FDI, despite institutional weaknesses. Quoting a World Bank paper(“Does ‘Good Government’ Draw Foreign Capital? Explaining China’s Exceptional Foreign Direct Investment Inflow”) it notes:

    “China is now the world’s largest destination of foreign direct investment (FDI), despite assessments highlighting its institutional deficiencies. But this FDI inflow corresponds closely to predicted FDI flows into China from a model that predicts FDI inflow based on government quality indicators and controls and is estimated across a sample of other weak-institution countries. The only real discrepancy is that, if government quality is measured by constraints on executive power, China receives somewhat more FDI than the model predicts. This might reflect an underestimation of the strength of these constraints in China, a unique institutional setting for FDI operations, FDI based on expected future institutional improvements, or a unique Chinese model of development. The authors conclude that Ockham’s razor disfavors the last. They also note that FDI may be elevated because Chinese institutions protect foreign firms better than domestic ones.”

So it is a case “Chinese characteristics” for FDI, as with so many other things. And, as with all things in China, these characteristics are subject to change, especially where government treatment is concerned.

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One Response to “FDI Up. With Chinese Charateristics.”

  1. Archive » FDI up 12% in First Half| China Business Blog Says:

    […] 12% in First Half Related entries: General, Investment, Economy FDI just keeps on coming to China. Shanghai Daily reports that it was up 12% in the first half of 2007: […]

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