Foreign Direct Investment And Chinese Economic Growth Economics Essay

The intent of this paper is to discourse the job of FDI in China. It is widely admitted that FDI has made great part to China economic system. During the last two decennaries, the volume of FDI of the whole universe increased aggressively at an unbelievable velocity. Many developing and passage authorities strive to pull foreign direct investing to back up the economic system growing, so does the Chinese authorities. It is the fact that China has non merely managed to trip the economic system growing, but besides manage to keep the growing at a high velocity. But we find that the degree of FDI in China is much higher than the degree of India, South Korea, and Brazil. The growing velocity of China is two or three times of those states, but the ratio of FDI-GDP is even more than 10 times. The bing literature on the topic pays more attending on theory research, while the surveies look intoing the efficient of FDI in certain states and the function played by the local status that affect the map are panic. This paper investigates the low efficiency of FDI in China and finds that the fiscal development, human capital and the construction of industries FDI invested have great relationship with the low efficiency.

Introduction

It is widely accepted that the impact of foreign direct investing on economic growing is equivocal. The fact of dining FDI in developing states demonstrates the statement. Early research worker thought that the consequence by increasing entire societal capital accretion in the receiver states is the chief channel through which FDI contributes to the economic growing. As Bagehot ( 1873 ) remarked, “ in a trade English capital is immediately at the disposal of individuals capable of understanding the new chances and doing good usage of them. In states where there is small money to impart enterprising bargainers are long kept back, because they can non at one time borrow the capital, without which accomplishment and cognition are useless. ”

Volume of foreign direct investing increased during the 1990s and there are two top outing at 2000 and 2007. With the rapid growing of foreign direct investing, the universe economic system and the developing states ‘ economic system have increased at high velocity until the detonation of the fiscal crisis at 2008. At 1997, the East Asia crisis interruption out, so people found that non good developed fiscal development can destruct the economic system and they reduced their investing to the states with ill managed fiscal market. While the positive part of international capital flows is so large and the consequence of increasing the productiveness in receiver states has been demonstrated, developing states strive to pull foreign direct investing to acquire the benefit of spillover consequence, crowds in consequence, and so on. As illustrated in the graph below, the three large developing states attracted more and more foreign direct investing signifier 1990.China, the biggest developing state, attracts the biggest volume of foreign direct investing.

With the reform and openness, Chinese economic system has experienced a rapid growing for more than 30 old ages. At the beginning of the reform and openness, capital, engineerings and direction engineering were the chief limitation on the development of the economic system, which has been separated from the universe economic system for old ages. On the contrary, western developed states had encountered stagflation in 1970s. As a consequence of the stagflation, western economic growing slowed down, and plentifulness of capital needed to be reinvested to acquire net income. Supply met demand, and foreign direct investing entered the Chinese economic system and got good developed.

The part that FDI made can be divided into two groups, capital consequence and spillover consequence. Spillover consequence includes engineering spillover consequence, industries construction optimisation consequence and institutional alteration consequence. Capital consequence includes capital accretion consequence, export publicity consequence and capital pull consequence. Capital consequence is the direct consequence of foreign direct investing. While FDI transportations production factors, so it non merely affects the receiver states ‘ capital and labour factor, but besides the factors that can advance the economic growing, which will incentive the economic growing indirectly.

Technology spillover consequence of foreign direct investing is that developed states and parts invest straight into developing host state, through which their advanced production engineering, concern constructs, direction experience penetrate into the local concerns via the manner of proliferation non-voluntarily. The spillover consequence will better the local concerns ‘ engineering degree and incentive the local economic system. It has the characteristic of outwardness.

As mentioned above, the freshly opened China economic system was deficiency of capital, advanced engineerings and managerial accomplishments, so the foreign direct is merely what China demand. With the benefit of foreign direct investing, Chinese economic system got good developed from the 1980s, and now it is the 2nd biggest economic system in the universe.

After 30 old ages ‘ high velocity growing, China has attracted a great volume of foreign direct investing, and the FDI is now an of import factor that increases the economic growing. But we notice that the use of FDI is of low efficiency. The measure of FDI is high, while the quality of FDI is low.

India, the 2nd biggest developing state, attracts about one fifth of the volume of China. And the fact is that the growing rate of India is more than half of China.

FDI Net Inflows of the World

FDI influxs of the four states

As discussed above, FDI can make technological outwardnesss for the host state, which can assist the host state to advance the engineerings. But the efficient of the spillover consequence depends on the ability of acceptance and execution of new engineerings that are already in usage in developed states. Besides, the positive relationship between FDI and host states ‘ economic growing need a pro-condition that the host states have a extremely developed fiscal system. The high degree of development in the fiscal system can do the economic system more efficient. As McKinnon ( 1973 ) argued, the development of capital market is the necessary and sufficient to further the acceptance of best pattern engineering and acquisition by making. The limited entree to recognition markets limits the development of domestic concerns. The absence of good developed fiscal market will weaken the positive outwardnesss of FDI. On the other manus, other positive effects FDI made, like debut of new procedures, managerial accomplishments, technological transportations in the local market can besides be affected by the domestic status. The spillover consequence is an of import channel via which foreign direct investing enhances the local economic growing. But this channel is affected by more factors, and the relationship is more complicated. In peculiar, a well developed fiscal system can heighten the procedure of technological diffusion, which is produced by the spillover consequence.

The paper aims to work out the job of the low efficiency of FDI in China with the theoretical findings, and give some advice to the authorities. In this paper, I check though the different ways that FDI heighten the economic growing and happen that the deficiency of extremely developed fiscal market, labour capital and the low quality of FDI is the chief ground of the low efficiency.

The first subdivision of this paper is literature reappraisal. It presents a series of former theoretical findings. It foremost provides the consequence, though which FDI promote the economic growing, so give the conditions that affect the economic growing publicity consequence. The 2nd subdivision investigates into the empirical analysis to happen the peculiar conditions in China that affect the publicity consequence. The 3rd subdivision involves the advices on the job of low efficient.

Theoretical model

The channel that FDI promotes the receiver states

Capital consequence

In the procedure of states ‘ growing, the formation and accretion of capital are the indispensable for the institutional reform, engineering update and labour input. The consequence caused by the influx of FDI is presented in two ways.

The Two Shortage Model gives the first manner that the FDI affect the local economic system. Harmonizing to the two deficit theoretical account, influxs of FDI increase the recipient states ‘ capital volume via assorted ways, which do goods to the foreign exchange spread and salvaging spread. One-dollar addition in the net influx of FDI is associated with an addition in the domestic entire investing in the recipient states of more than one dollar. ( ???e§† ) This consequence is called “ crowds in ” consequence. On the one manus, the chief signifier of FDI is green investing, which will enlarge the production graduated table and organize the new green goods capacity at the same clip. On the other manus, FDI increases the inter investing between the domestic endeavors and foreign investing and promotes the execution of domestic investing undertakings. As a affair of fact, organize the reform and openness to the center of 1990s, the chief intent of pulling foreign investing in China is to do up for the deficit of foreign exchange and capital spreads.

The 2nd manner is “ crowds out ” consequence

The endeavors that the foreign direct investing invests compete and replace the domestic endeavors in the production or fiscal market. This is called crowds out consequence. The impact that FDI caused to the export can be besides be divided into two facets: export permutation consequence and export publicity consequence. As the transnational companies are familiar with the international market, they normally have good repute, advanced selling tool, and broad distributional channel. So FDI can assist the receiver states join into the international competition, and convey the receiver states advanced engineering, managerial accomplishments, which will besides assist to better the international fight of the host state. FDI has the impact of advancing the growing of host state exports and linkages to the outside universe. The foreign endeavors can increase the export indirectly via the backward linkage, which accounts a big portion of the host states ‘ export. At the terminal, the entire export of the host states ‘ export will increase because of it. FDI may replace the trade between the host state and place state, because if the goods imported in the host state is now produced at the host state, particularly when the two states have the same or similar production map ( Mundell, 1957 ) . Many manufacture transnational companies set up trade endeavors at the host state, and construct the international production and sale system, replacing the former export to host states.

Spillover consequence

Technology spillover consequence of FDI is that developed states and parts penetrate its advanced production engineering, concern construct, direction experience, and so on through some nonvoluntary manner into other local concerns to advance the proficient degree of endeavors in host states, hence to excite the state ‘s economic growing. The consequence is a public presentation of an economic outwardness. Spillover consequence of FDI depends on the size of both the proficient degree and the capableness to larn the engineering of the local company. The capableness can be expressed as the fight of local endeavors, or can be taken as a state ‘ fight from a macro point of position. The higher a state ‘s degree of economic development, national and enterprise fight is stronger, investor will be forced to raise accomplishment degrees, and therefore will acquire more direct engineering consequence and higher engineering spillover consequence from FDI.FDI engineering spillover consequence chiefly through the undermentioned ways to play a function in China: foremost, foreign capital transportation engineering through the market channels or channels within China ‘s domestic endeavors, which will convey international advanced engineering to make full the engineering spreads ; 2nd, there is a consequence of imitation, domestic houses can better production engineering and direction experience through the imitation ; 3rd, engineering spillovers arise when the foreign companies have concern with the forward and backward linkage with the local houses ; Forth, increasing force per unit area from foreign competition would excite domestic endeavors to utilize existing resources more efficaciously and better labour productiveness ; foreign companies set up R & A ; D establishments in China, through which Chinese employees get cultivated, raising the corresponding industrial engineering research and development capablenesss and engineering.

Economic construction consequence

Economic development requires non merely continues the growing of entire end product, but besides the intensifying demands of the economic construction. Industrial construction alteration chiefly refers to the first, 2nd, and third industries in portion of the GDP alterations. The consequence on industrial construction of FDI in China chiefly express in two facets. On the one manus, FDI non merely helps to set up new industries in China, but besides enables China upgrading of traditional industries, through the influx of capital, engineering and other “ bundle ” of production factors, particularly the high degree of engineering and managerial accomplishments. Under the consequence, Chinese industrial construction is altering from inward-looking to export-oriented industrial construction, and the domestic companies become more internationally competitory. On the other manus, economic growing effects brought by the influxs of foreign capital addition the occupants ‘ income degree, and change the state ‘s ingestion construction. What ‘s more, the goods produced by the foreign company play a guiding function on the occupants ‘ ingestion. It indirectly optimizes the economic construction.

Foreign direct investing inflows besides introduce a strong drift to alter institutional system in China. The drift chiefly lies in the flowing facets. It improves the efficiency of the authorities at all degree, and improves the market mechanism, speed uping the gait of reform. Demonstration consequence of foreign companies will spur alteration of managerial accomplishments, which will rush up the integrating with international markets. Besides influxs of FDI promote the fiscal development of China, including fiscal instruments development, fiscal markets and the fiscal system development, and diminish the cost of information and trade. The impact so affects the salvaging ratio, investing determination, engineering invention and long-run economic growing. Above all, it promotes the China ‘s marketization procedure and the non-state economic development, and farther accelerates the gait of China ‘s opening up.

Factors that affect the efficiency of FDI

Although FDI can lend to the development of host economic system, the efficiency of taking advantage of the consequence depends on the domestic market status. Domestic fiscal development, human labour stock, ownership of the foreign capital invested houses and construction of FDI influxs are important conditions that affect the quality of FDI.

To analysis the factors that affect the efficiency of FDI, we should cognize the importance of each channel that the FDI promote the growing. The chief channel through which FDI contributes to economic growing is by exciting technological procedure, instead than by increasing entire capital accretion in the host economic system ( E. Borensztein 1996 ) .

Financial development

The development of domestic fiscal markets in peculiar can impact the economic system ‘s ability of taking advantage of such possible FDI spillovers. Among these conditions that affect the efficiency, development of local fiscal markets is the necessary and sufficient status of acquisition by making and engineering spillover. Not good developed fiscal market non merely restricts the development of domestic economic system. As Yifu Lin stated, if the bank construction, support construction fits the demands and content of local economic construction, the fiscal market will be contributing to economic development and growing. Or we can state that in the large concern orientated economic system, the MS-type fiscal construction or extremely concentrated will be good to economic development. On the contrary, the fiscal will restrict the growing of economic system. Financial development is important to the economic development, so it may besides impact the efficiency of taking advantage of FDI. A batch of economic theoretical accounts have got the decision that the impact of FDI on economic growing is contingent on the development of fiscal markets of the host state. Alfaro et Al. ( 2004 ) find that the development of local fiscal markets is an of import pre-condition for a positive impact of FDI on growing. He gets the decision that decision with a additive interaction theoretical account. And this determination was farther supported by Villegas-Sanchez ( 2009 ) utilizing micro-level informations from Mexico. Villggas-Sanchez finds that domestic houses benefit from foreign direct investing merely if they are comparatively big and located in the country with developed fiscal market. Azman-Sainii??2010i?‰use a different attack to analyze the function of local fiscal markets play in interceding foreign direct investing effects on economic growing, utilizing a theoretical account based on the construct of threshold effects. The determination is that the positive consequence of FDI on growing “ kick in ” merely after fiscal markets development exceeds a threshold degree. Superficially the fiscal system helps to heighten the efficient resources allotment and so it promote the ability of larning. Besides, the developed fiscal system may assist to taking advantage of technological diffusion generated by FDI influxs.

The spillovers may follow different channels to take topographic point: foremost, presentation or imitation ; 2nd, competition ; 3rd linkages ; Forth, preparation.

Technologies used by foreign houses are more advanced than those used by local endeavors, and these local houses imitate the newer engineerings. By copying the newer engineerings, domestic houses become more productive. It is the same for the managerial accomplishments introduced by foreign houses. This consequence is called presentation consequence, and it may take topographic point through indirect or direct relationship between houses or through labour turnovers from foreign to domestic endeavors. Domestic houses can profit from copying and copying those newer engineerings when the technological degree in the receiver states is more rearward than the degree used by the foreign houses. This thought is same with the convergence of technological accomplishments.

The entryway of foreign houses intensifies the domestic market, which forces the domestic houses to go more efficient. The more competitory market leads to upgrading bing engineering and developing new engineerings and direction accomplishments.

Foreign houses may reassign new engineering to domestic houses through minutess with these houses. This channel of consequence is called linkages channel of spillovers. Purchase of natural stuffs or intermediate goods can be taken as a term of such dealing. This channel lead to intensive buyer-seller dealingss with domestic houses in the local market, and foreign houses may supply proficient aid and preparation to local linkage houses. What ‘s more, domestic houses may necessitate to better their production procedure to run into the foreign houses ‘ proficient and quality demands, which will increase the productiveness of the domestic houses indirectly. Besides, local houses will non merely profit from the merchandising to these house, they can besides acquire benefit in the international market.

Above all, the most of import channel is developing channel. It emphasizes the debut of new engineerings, and the local houses copying them.

But all the spillover of advanced engineerings can work good is under the hypothesis that the high productiveness of capital and labour in the receiver states. The spillover consequence can merely be given certain features, which determine the soaking up capacity of engineering spillovers of the host state, of the environment in the host state. A batch of state surveies have proved that important function of certain host state is the stipulation of positive part to economic growing.

As we all know, if the local houses intend to upgrade their engineering or follow new engineerings, they need to fund to back up these activities. The domestic fiscal system partially determines whether the domestic houses may be able to fund the investing from the fiscal market. Besides it can find the cost of the fundraising. So the development of fiscal market can impact the part by two channels. It can convergent the economy. This can increase the volume of available fund resources. Second, as the fund is borrowed from Bankss, the investing is screened and monitored by these Bankss. This will increase the efficiency of the undertakings carried out. The more developed the fiscal market, the more available fund resource will be collected, and the more efficient it is. Adopting new engineerings faces great market hazard, so the developed fiscal system may assist to cut down the market hazard. With decreased hazard, local houses have more inclination to follow the new engineerings that is used in the foreign companies. So, the developed fiscal market has positive consequence on the spread of technological invention. The higher velocity of invention spread can heighten the host state ‘s economic growing ( Huang and Xu ) . With developed fiscal system, the hazard associated with investing is reduced. The reduced hazard will non merely profit the domestic houses but besides the foreign houses, for the foreign houses with advanced engineerings still need to put on the invention. The handiness and quality of domestic fiscal markets besides may act upon FDI and its impact on the diffusion of the engineering in the host state. This diffusion procedure may be more efficient one time fiscal markets in the host state are better developed, since this allows the subordinate of a MNC to lucubrate on the investing once it has entered the host state.

Therefore, as a decision, FDI and domestic fiscal markets are complementary with regard to heightening the procedure of technological diffusion, thereby increasing the rate of economic growing. Developed fiscal system so helps to contributes to the procedure of technological diffusion associated with FDI.

Human capital

Skills need to work with high-ranking capital goods can be learnt. But it needs a minimal educational degree to be able to get the hang advanced accomplishments. You can non number an illiteracy to make the work associating with familial technology. So the technological spillover can merely go on when there is a certain minimal, or threshold degree of available human capital in the recipient state.

James R.Markusen ( 1998 ) did instance survey on South East Asiatic economic systems and found that the higher productiveness of FDI holds merely when the host state has a minimal threshold stock of human capital. And FDI contributes to economic growing merely when a sufficient absorbent capableness of the advanced engineerings is available in the host economic system. Technological procedure takes topographic point through a procedure of “ capital deepening ” in the signifier of the debut of new assortments of capital goods. He besides found that “ there is a strong complementary consequence between FDI and human capital, that is, the part of FDI to economic growing is enhanced by its interaction with the degree of human capital in the host state. ” As Graham and Krugman ( 1992 ) argue, domestic houses have better cognition and entree to domestic marlets ; if a foreign house decides to come in the markets, it must counterbalance for the advantages enjoyed by domestic houses. And Lecine and Renelt ( 1992 ) find a robust relationship between economic growing, DFI and human capital. It is easy to understand that foreign houses enjoy lower cost and higher productive efficiency than its domestic rivals. And this is chiefly because of the advanced direction accomplishments and modern engineering used in the foreign houses. But local house must hold sufficient trained labor, who can work with new engineerings. Without them, local have job in following new engineerings. So there exists a robust interaction between human capital and FDI.

As a decision, the consequence of FDI on economic growing is dependent on the degree of human capital available in the host economic system.

Ownership

The consequence of a survey of the largest exports in Hungary ( Istvan Janos Toth and Andras Semjen, 1999 ) indicates that foreign affiliates with larger portions of foreign equity tend to buy fewer inputs from Magyar companies. So, big spillovers are associated with partly instead than to the full owned foreign undertakings. Full foreign ownership if a placeholder for greenfield undertakings, it is thought that to the full owned foreign affiliates will be given to beginning more locally. Greenfield undertakings are ever portion of the production concatenation. It has much relationship with the other portion of the concatenation. It may has frontward and backward linkage with these mills located beyond the host states. To minimise the entire cost of the transnational companies, the director may reassign semi-manufactured goods inter the company, and may take steps to avoid revenue enhancement. In this instance, the channel, though which the technological spillover take topographic point is cut. Beata Smarzynska Javorcik

Indicates that the presence of productiveness spillovers take topographic point through backward linkages. An on grounds of intra-sectoral spillovers is found. And there is no grounds of spillovers stemming from transnational presence in sectors providing intermediate inputs.

Empirical analysis

Investing is the important factor for the economic development, and panic of fund has been the chief limitation on the growing of development. Although the chief channel though which FDI contributes to economic growing is by exciting technological advancement, instead than by increasing entire accretion in the host state. The foreign has been taken as the chief beginning of development fund in developing state. As developing state has non developed economic system, there is small available fund to put. After the debt crisis, it was no longer easy to acquire fund from these developed states and parts. But if there is a extremely developed fiscal market in the underdeveloped state, it is easier to acquire fund from the domestic fiscal market instead than abroad. The fact is that without high degree of economic development, it is impossible to put up an advanced fiscal market. Besides, people in developing states is hapless than people in developed states, and they do non hold extra to put.

From the graph below, it is obvious that China ‘s salvaging ratio is much higher than that of Brazil and India. The salvaging ratios in India and Brazil are so low that they need more international fund to back up their economic development and growing. On the contrary, China may make non necessitate or necessitate less foreign investing to back up the development with the high economy ratio.

Salvaging ratio in China, Brazil and India

But the fact is shown in the graph below. China, the state with the highest economy ratio, has the highest FDI-GDP ratio at the same clip. The ratio is much higher than the neighbour Korea. And the ratio peaked at 1993, so float between 3 % -4 % .

The high velocity of growing of Korea in 1962-1992 has been accepted as a good illustration for the underdeveloped state. Now Korea is about a developed state. The ratio of Korea is much smaller than China during the economic growing. With great different of FDI-GDP ratio, there is a little spread between the growing ratios.

So the consequence of FDI did non work good in China during the last two decennaries. With so much high influx and stock of investing, economic system in China should hold much higher growing rate. Or, the growing in China does non necessitate so much FDI to back up.

Fiscal market development

The development of fiscal market will impact the technological spillovers consequence, which is the chief channel through which FDI contributes to economic. China has acquire great betterment in the fiscal development during the last 30 old ages. We can acquire the information that the fiscal market is most developed market of the four states. But the fact is that the salvaging ratio is much higher in China. There are several grounds that make this state of affairs. China has higher M2/GDP ratio is non because of the fiscal market efficiency is high in China, but because of the low efficiency. First, the salvaging ratio is high. The particular ingestion wont make Chinese tendency to salvage money in bank, non borrow money from bank. Second, the stock market in China is developing, so the channel of turning salvaging to investing is limited. In developed states, stock markets are developed, so occupants ‘ economy can be easy reassign into investing to acquire benefit via assorted ways. Besides, pecuniary circulation velocity in China is really low. Monetary speed of M1 was 1.69 at 2000 in China, and the speed of M1 was 5.81 at 1998 in America. As a decision, the index is high, but the existent efficiency of the fiscal market is China. The available money can non be easy translated into investing, so the foreign houses can non easy acquire adequate financess to back up the research and development, and the domestic houses can non acquire adequate financess to copy the new engineerings used in the foreign houses. Or the cost is much higher than the houses that in the developed fiscal market. As the cost of the transferring engineerings becomes additions, the spillover consequence will be limited.

Human capital

We can utilize the secondary school registration of male as a per centum of the gross population for the human capital stock variable. Harmonizing to Barro and Lee ( 1994 ) , the step of male secondary schooling attainment is the 1 most significantly correlated with frowrh. This is because that the male are the chief labour of the market, and about all of the male work in the society. But educated female may remain at place to take attention of the kids. They may make non work even they have the ability of working. So if we use the secondary schooling i?? % grossi?‰i??we may over value the degree of human stock.

Korea and Brazil enjoy the highest degree of human stock, while, the human stock of China and India are low. As mentioned at the 2nd portion, the consequence of FDI on economic growing is depent on the degree of human capital available in the host state. The acceptance of new engineerings and the preparation requires plenty educated labour force to work with the new engineerings. Korea is now constructing knowledge-intensive industries at domestic market. The state has place in many hi-tech Fieldss. The economic construction of Korea is bettering, and it is really suited for the engineerings to reassign. So does Brazil.

Although the index of India is lower than China, this does non intend that China has advantage on the engineerings spillover consequence. As we all know, India has built a complete IT industry concatenation and the third industry. Both of these two industries are high value-added. And part economic systems in India different from each other. Merely some portion of the state is connected with these two industries. So if we have the index of secondary instruction in these parts, the informations may be better than China.

The absolute figure of the index is really low compared with other developing states. And the taking skilled worker and enginemen, who was at their 40s and 50s during the 1990s and 2000s, have non been good educated because of history ground. Because of that ground, there were small skills militias available at the beginning of growing. What ‘s more, there were great technological spreads at variable industries. So, the great spreads made the acceptance of new engineerings more hard and hazard. These fact greatly limited the promotional consequence on economic system of FDI.

Structure of FDI

FDI construction

This grape shows the construction of FDI in China. China now is called “ universe mill ” , which means that China has the great green goods capableness and can even back up the ingestion. At the same clip, it means that secondary industry occupies a really of import place in Chinese economic system. The chief organic structure of Chinese economic system is composited by labour-intensive and investment-intensive industries, and a great portion of them are invested by the foreign houses. These industries are low efficient and low value-added. Above all, these labour-intensive industries are seldom related with high engineerings. Let alone engineering spillover consequence. These fund invested into these industries can merely raise the informations, pollution in China. The investment-intensive industries are normally high-pollution and high energy-consuming. These engineerings used in these industries may spillover, but it is still related with the industries, non connected with high value-added industries.

What ‘s more, most foreign houses invest into China via the signifier of GREEN investing. But the fact is that spillovers are associated with undertakings with shared domestic and foreign ownership, but non with to the full owned foreign investing.

Policy advice

To sum up, Chinese authorities should pay more attending on bettering the gap environment to develop the fiscal market and pay more attending on instruction to advance the human capital stock. With the clip goes, the leaders in houses, who were non good educated, will retire in several old ages, and so the educated following coevals will take charge of the houses.

Besides, authorities should non merely pay attending on the sum of FDI, but besides the quality of FDI, and promote the domestic houses with the cooperation of foreign. The partially owned houses are the chief resource of engineerings.

What ‘s more, the authorities should choose the investing from foreign houses. Merely the investing that are connected with the high value-added and high-technologies can be allowed to come in the domestic market.

Merely with the developed fiscal market, adequate human capital, perfected investing construction and partially ownership, can the state acquire the most benefit from the foreign direct investing.