My paper will address the development of the Chinese economy and in which way the regulation of foreign direct investment (FDI) helped China to overcome a financial trough and to swing themselves up to one of the biggest players on the global market. Therefore, my guiding question will be "How has the Chinese regulation of FDI from the late 1970s until the 2000s boosted the economy of the country?".
My topic and research question are relevant because the economic evolution China has been through is unique, even though its growth model was like those of other Asian or Communist countries and other states like the UDSSR failed to transition their market into a more liberal system. The astonishing success story that China has written was greatly influenced by the opening to FDI whilst still having restrictions on it to channel it into the right sectors for developing the country.
This essay is based on the neoclassical growth theory which seems to fit the most since the three driving factors of this theory are labour, capital and technology, which are all important factors of China's economic growth. To explain its case, I will mainly use academic literature from researchers specialized on Chinese economy, a scientific article and a study. I will use data from the Worldbank and from various surveys that Long evaluated to point out and underline the growth of China's economy.
I found that FDI clearly helped to spur the rise of the Chinese economy, even though the study of Ford did not find direct benefits of FDI in China in the long run but admits positive indirect effects. My findings in this paper are therefore that the applied regulative measures were effective at the time but might not be sustainable if they wanted to use this set of regulations in the future.
Table of Contents
1. Introduction
2. China´s Problematic Situation
3. The Liberalization Process
3.1 Export Processing Contracts
3.2 Opening the Door to Foreign Business
3.3 Taxation System and Exemptions
4. Special Economic Zones Attract Foreign Business
5. Bilateral Investment Treaties Guarantee Protection
6. The Introduction of Advanced Technology
7. China´s Entry into the World Trade Organization (WTO)
8. Conclusion
Research Objectives and Topics
The paper examines the evolution of the Chinese economy since the late 1970s, specifically investigating how the strategic regulation of foreign direct investment (FDI) enabled China to overcome economic stagnation and integrate into the global market.
- The historical context of China's economic situation prior to liberalization.
- The legislative and fiscal mechanisms used to attract and steer FDI.
- The role of Special Economic Zones (SEZs) as pilot projects for foreign trade.
- The impact of technology transfer and human capital training on domestic development.
- The long-term effects of WTO accession on China’s regulatory framework.
Excerpt from the Book
Special Economic Zones Attract Foreign Business
Simultaneously they started to open Special Economic Zones (SEZ) near Hong Kong and Taiwan, two states that were far more advanced in the development of foreign trade, in 1978. Those SEZs were used as a pilot project for trade, where the restrictions on foreign investment and business were less strict. The SEZs were set in areas, whose economy was even trailing behind the rest of China, so that this project could not do much damage to the provinces. The local governments in the SEZs were granted rights for experimental incentive setting to attract foreign firms and investments. The administrative barriers in those zones were lower and it took less time to open a business there because of a simplified registration. The government specifically encouraged the establishing of Chinese-foreign joint ventures and foreign investment (Naughton, 2006; Kroeber 2016).
Local and central governments profited from the SEZs as the local administrations just had to deliver a certain amount of foreign currency to the central government which was agreed upon in contracts. Everything above that amount the local governments could keep and reinvest. To attract foreign businesses to the SEZs companies were given tax rebates or even tax holidays for the starting years as well as duty-free import rights on goods meant for export production (Naughton, 2006)
Summary of Chapters
1. Introduction: Outlines the research question regarding how FDI regulation boosted China's economy and defines the theoretical framework based on neoclassical growth theory.
2. China´s Problematic Situation: Describes the state of the Chinese economy prior to the late 1970s, characterized by low technological standards and a restrictive demand-economy model.
3. The Liberalization Process: Explores the initial steps toward economic reform, focusing on export processing, legislative changes for joint ventures, and tax incentives.
4. Special Economic Zones Attract Foreign Business: Discusses the implementation of SEZs near Hong Kong and Taiwan as strategic pilot hubs to attract foreign technology, investment, and administrative expertise.
5. Bilateral Investment Treaties Guarantee Protection: Analyzes how the implementation of BITs provided necessary legal security and trust for foreign investors to enter the Chinese market.
6. The Introduction of Advanced Technology: Examines policies designed to promote R&D centers and the adoption of advanced foreign technology to fill domestic technological gaps.
7. China´s Entry into the World Trade Organization (WTO): Details the transition toward global integration, the reduction of tariffs, and the dismantling of specific performance requirements for foreign investors.
8. Conclusion: Synthesizes the findings, confirming that while FDI was vital for China's growth, its long-term sustainability remains a point of academic debate.
Keywords
FDI, China, Economic Growth, Neoclassical Growth Theory, Special Economic Zones, SEZ, WTO, Technology Transfer, Joint Ventures, Trade Liberalization, Bilateral Investment Treaties, BIT, Export Processing, Industrial Development, Foreign Exchange
Frequently Asked Questions
What is the core focus of this essay?
The essay analyzes the development of the Chinese economy from the late 1970s through the 2000s, focusing specifically on how the government regulated foreign direct investment to foster growth.
What are the primary thematic areas explored?
Key areas include the liberalization process, the implementation of tax and tariff barriers, the establishment of SEZs, the role of Bilateral Investment Treaties, and the impact of WTO membership.
What is the central research question?
The guiding question is: "How has the Chinese regulation of FDI from the late 1970s until the 2000s boosted the economy of the country?"
Which scientific method is utilized in this paper?
The paper relies on an analysis based on the neoclassical growth theory, utilizing existing academic literature, study evaluations, and data from the World Bank.
What does the main body of the work cover?
It covers the systematic steps taken by China, from initial export processing to complex technology transfer incentives and the eventual integration into global trade structures via the WTO.
Which keywords best characterize this work?
The most important terms include FDI, China, Economic Growth, Special Economic Zones, and Technology Transfer.
How did SEZs specifically benefit the Chinese economy in the early stages?
SEZs acted as controlled pilot zones where lower administrative barriers and tax incentives attracted foreign firms, allowing the government to experiment with trade without disrupting the entire national economy.
Why were Bilateral Investment Treaties considered "crucial" for FDI?
They were essential because foreign investors initially lacked trust in the Chinese legal system and feared asset seizure; these treaties provided legal guarantees such as expropriation protection and dispute settlement.
What role did the "Taiwan factor" play in this development?
It refers to the relocation of Taiwan's developed electronics industry to mainland China, which significantly accelerated China’s technological progress and export capacity.
What conclusion does the author draw regarding the sustainability of these regulations?
The author concludes that while these policies were highly effective in triggering growth, they may not be sustainable or beneficial in the long term now that China has achieved a more advanced competitive level.
- Arbeit zitieren
- Felipe-Jordi Rahn Bueno (Autor:in), 2018, Chinese FDI Regulation. Development and Benefit for the Chinese Economy, München, GRIN Verlag, https://www.grin.com/document/497719
