Document Type

Article

Publication Date

1999

Abstract

The study traces the growth of direct foreign investment (DFI) inflows in China, and its distribution by sector, receiving regions and source countries. It also looks into the trends and patterns of Chinese outward direct investments. Direct investment flows into China are shown to be significantly affected by China's GDP growth rate, wage rate and exchange rate as well as the world's GDP growth rate. Policy factors play a catalytic role. China's overseas direct investment, likewise, appear to be influenced by home country (e.g.: Chinese government policies, Chinese competitive advantage) and host country (e.g., market considerations, cost and price factors, and receiving countries' policies) variables. The study has also shown that the massive flows of inward DFIs have significantly contributed to China's capital formation and export performance. Furthermore, the improved shares of China as well as the ASEAN-4 countries in the global supply of DFIs do not indicate a crowdingout effect. Two-way DFI flows between China and ASEAN countries, particularly Thailand and Malaysia, have become increasingly important since the early 1990s.

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