Transcript FDI in China

doc. Ing. Tomáš Dudáš, PhD.
China – Basic Information
 1,33 billion inhabitants
 GDP –13,39 billion USD (PPP)
 GDP/c – 9 800 USD (PPP)
 GDP growth in 2013 – 7,7 %
 Labor force – 797,6 million
 Sector employment – 33,6-30,3-36,1
 Unemployment – 6,4 %????
 Poverty – 13,4 % of the population live below the
poverty line
China – important milestones
 1949 – The creation of People’s Republic of China
 1946-1976 The reign of Mao Zedong, which could
be described by very strict communist policies
 1978 – The start of economic reforms
 1989 – Tienammen square massacre
 2001 – China’s WTO accession
FDI in China after 1978
 1978 – bad economic conditions (dual society,
where the urban population had 3x higher income
than the rural population)
 Economic pragmatism – the ideological
background was not important
 Gradualism – slow and gradual changes
 1978 – law about joint ventures
FDI in China after 1978
 1980 – the creation of 4 special economic zones – Shenzen,





Zhuhai, Shantou and Xiamen
1984 – 14 coastal cities were opened to the foreign
investors
The government continued to add more special economic
zones, export processing zones and technological parks
Main problem – the Tienammen square massacre, but the
FDI begun to grow dynamically in 90s
Up to 2000 China received FDI in amount of 395 billion
USD in more than 363 thousand projects
From 1985 – 85 % of the FDI received came into the special
economic zones
FDI in China after 1978
 Before 1990 the major part of the FDI originated from
Chinese living abroad (Between 1976 and 1996 57 % of
the FDI inflow originated from Hong Kong and
Macao)
 Current estimates - HK a Macao 40%, USA 11%, EU
11%, Japan 8%, ASEAN 8%, Taiwan 6%, Other 16%
 Some problems with the identification of the origins
of the FDI
 Problem – the dominant position of eastern China
that received up to 2000 around 87 % of the total FDI
Most important investors in China in
1979-88 and 2008 (%)
2008: US$ 92.4 B
1979-88:US$ 28.4B.
8.5
United States
Japan
%
70.8
H.Kong/Macao
44.4
Hong Kong
17.3
British Virgin Islands
4.7
Singapore
4.8
Japan
4.0
Cayman Islands
3.5
South Korea
3.4
United States
3.1
Western Samoa
2.8
Canada 0.6
Taiwan
2.1
France 0.5
Mauritius
1.6
Singapore
1.9
West Germany 1.1
%
Spain 0.7
The Netherlands 0.6
United Kingdom 0.6
%
12
Sectoral structure of FDI inflows
between 1976 and 2000
 Agriculture – 1,5 %
 Industry– 58,7 %
 Services– 39,8 %
Main types of FDI in 2006 and 2008
80
70
60
50
% of Total 40
30
20
10
0
EJVs
CJVs
WFOEs
FISVs
2006
23
3
74
1
2008
19
2
78
1
EJVs = equity joint ventures; CJVs = cooperative joint ventures;
WFOEs = wholly foreign-owned enterprises; FISV=Foreign invested shareholding
ventures. See Glossary at the end of this file.
14
The main factors of the FDI inflows
 Large internal market with growing purchasing power
 Low cost labor force (approx. 1/3 of the costs in Mexico
and 1/20 of the costs in USA)
 Growing labor productivity
 Generous state support of FDI inflows (financial
incentives, infrastructure, special economic zones)
Impact of the FDI inflows on the Chinese economy
 FDI inflow supports GDP growth – 1 % increase in
the FDI inflows leads to 0,05 % of GDP growth
 Economic analyses show that currently FDI
inflows contribute to the GDP growth by more
than 20 %
 Export growth – from 10 bln. USD in 1978 to 125
bln. in 2000
 Companies with foreign ownership have a 50 %
share on the total exports
 The export structure of the companies in foreign
ownership is more modern than the export
structure of the domestic corporations
Impact of the FDI inflows on the Chinese
economy
 In 1995 corporations with foreign ownership employed






around 10 million employees
In 1998 it was already 17,5 millions and current estimates
are around 25-30 millions
Analyses say that every 10 000 USD invested created a new
workplace
FDI inflows had a huge positive impact on China’s trade
balance and currency reserves
New technologies and managerial know-how
The regions opened to foreign investors develop very
rapidly
FDI played an important role in the fight against poverty
Volkswagen in China – case study
 VW wanted to globalize the company, so they begun the talks





with the Chinese government in 1978
State owned enterprises dominated the Chinese automotive
industry those times (ex. FAW) – but low production
1978 – 55 assembly lines with an annual capacity of 150
thousand cars
In the early 80s the government made a decision – automotive
industry should be one of the main pillars of the economy
1984 – Joint venture between VW and Shanghai Automobile
Industry Corporation (SAIC)
VW invested 40 million USD in 1984 and 85 million USD more
in 1985
Volkswagen in China – case study
 VW needed China because it had a weak position outside





Europe
In 1985 the joint venture produced only 5 200 cars (model
Santana) – build from imported components
The JV was profitable also for the Chinese partner – SAIC
was paying 18 800 USD for one car and was selling it for 37
600 USD on the market
1987 – the start of a new phase with more and more local
subcontractors
1993 – production surpassed 100 000 cars per year
Currently the competition on the market is very strong –
VW has to fight for its position on the market