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The quality theory of foreign direct investment is more important than the quantity theory

SOURCE: TIME:2018-09-03

FDI (foreign direct investment) is a contradiction. When more FDI flows into China, there are more left-wing folk words, "foreign investment threatens economic security" decorates the face of theorists' worry. When FDI starts to decrease, people will marvel at the decline of China's attraction, the sharp diversion effect of India and the return of US investment brought by US tax preferences.

Recently, Hu Jingyan, director of the foreign investment department of the Ministry of Commerce, expressed his disagreement with the two statements. He refuted that foreign investment would threaten China's economic security, and he was optimistic that the FDI attracted by China would maintain the scale of 60 billion in 2006. This was also in response to a 1.9% year-on-year drop in foreign investment in the first 11 months of 2005. China's FDI in 2004 was 60.6 billion US dollars, compared with 60.3 billion US dollars in 2005, which led some people to think that this is a signal that China's economy has entered a bleak period.

The gradual decline of FDI is a very normal phenomenon. For example, since China's accession to the WTO in 2001, the total level of tariffs has dropped by 1 percentage point every year. You should know that FDI is an alternative to commodity trade around switching taxes and trade barriers (the term in international trade is along the Rybczynski line). When the tariff of commodity trade falls, it will naturally make FDI decline. The effect of reverse substitution of commodity for FDI has taken place, so the tariff drop always makes FDI drop more or less, so FDI recently dropped by 0.5 percentage points, which is also very normal. Foreign lawyer

The theory of FDI quantity is not a very wise judgment. In addition, ASEAN countries and India hold back China's FDI is also a superficial understanding. In fact, China's attracting FDI will promote the inflow of FDI in these regions, because the expansion of FDI capacity in China requires more investment in raw materials and supporting production links to meet the expansion of FDI capacity in China. Just as the business volume of one workshop suddenly increases, it will inevitably lead to the increase of manpower in the next workshop. Countries such as Vietnam assume the allocation function of the transnational production chain of FDI and become the back-end or follow-up capital of FDI in China. If we take into account the time lag effect of FDI in China, it is a good explanation why the FDI in Bangladesh, Vietnam, Thailand and other countries has become increasingly fierce in recent years, which is caused by the global industrial chain of FDI.

However, it must be reminded that there is still a quality theory of FDI, but the quality theory of FDI is always ignored. Compared with the past years, the proportion of national nature of FDI has changed a lot in 2005. FDI flows from the United States and Europe began to decline to less than 30% of the total FDI flows, and FDI from Japan also had the potential to shrink. South Korea, Taiwan region of China and disguised domestic capital (registered in three free ports of Cayman Islands, British Virgin Islands and Samoa, pretending to be foreign capital, returning to China in a curve, in order to seek preferential tax policies for foreign capital) expanded dramatically in the proportion of total FDI flows. For example, the share of these three free ports in FDI flows has increased from 16.51% in 2004 to 21%. The expansion speed of Korean capital in China in recent years reminds people of the popularity speed of Korean dramas.

The important theoretical basis of FDI quality theory is spillover, which is the involuntary diffusion of technology caused by human capital, R & D investment and other factors contained in FDI capital through various channels. These benefits are not seized by transnational subsidiaries, but shared with domestic enterprises. For example, the training brought by FDI promotes the improvement of human capital market, the spillover effect between industries brought by FDI stimulates the supply chain before and after, and drives the technology and standardization of upstream and downstream suppliers of FDI, most of which are domestic enterprises.

It has to be said cruelly that, on the whole, South Korea, Taiwan and disguised domestic capital, measured by the spillover effect, are good quality FDI. These FDI are more of a cost driven type of foreign investment: the use of China's low labor remuneration and low access to land resources, the implementation of low-tech diffusion of production capacity transfer. Although they have brought some jobs, they have not brought more powerful technological changes and improved the production efficiency of all factors. After investigating the additional contribution rate of FDI to China's GDP, it is found that the spillover coefficient of South Korea, Taiwan and disguised capital is 0.0958, while that of the United States and Europe is as high as 0.212.

Between 1988 and 2002, the spillover effect of FDI in China is higher than that after 2002. In contrast, in India, FDI has soared in recent years. What's more, the spillover effect of FDI is on the rise, and the average is expected to be higher than that of China. This study of FDI quality theory is the real gap between China and India. We must review whether the foothold of FDI should be diversified. We should not only obsess about the quantity of FDI, nor only attack the unreasonable double track of 33% income tax of domestic enterprises and 15% income tax of foreign investors. Instead, we should join in the factors of evaluating the quality system of FDI and grasp the economic picture from a multi-dimensional perspective. As the northern island poem goes, "let understanding spread out all its flags, whether it is bedspread, smoke or dusk.".

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Author: Xiaotian

Source: Tianjin foreign law firm

Original: http://www.jtcshewai.com

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