The Spillover Effect of FDI on the Manufacturing Industry in China

Abstract

Foreign direct investment (FDI), as a form of international capital flows, plays an important role in the process of economic globalization. During recent years, the scale of FDI increased rapidly all over the world, and the multinational enterprises (MNEs) has become its main carrier. Although majority of FDI flow into the developed countries, China has become one of the most ideal destinations for global capitals year by year, especially for its manufacturing industry. So this study is going to analyze the impact of FDI on the manufacturing industry in China.

The researcher selects the positivism research philosophy and the deduction research approach to carry on this study. And the secondary quantitative data is used to conduct the descriptive study and the regression analysis.

The research result shows that both industrial and regional distributions of FDI in China are unbalanced now. Most foreign capitals are mainly concentrated in the eastern coastal areas of China, and more than half of them are invested in the manufacturing industry. FDI could promote the performance of domestic enterprises in China. In addition, the FDI from foreign developed countries has a significant and positive spillover effect for both state and non-state owned companies in China. While the FDI from Hong Kong, Macao and Taiwan is proved to have a positive spillover effect on non-state owned firms, but it has a negative spillover effect on the state owned enterprises in the manufacturing industry in China.

Key words: FDI; Spillover effect; Manufacturing industry; State owned enterprises; Non-state owned enterprises