The Hinrich Foundation, a non-profit organisation which aims to promote sustainable global trade, is announcing the findings of a major project on the impact of Foreign Direct Investment (FDI) in China. The study was sponsored by the Hinrich Foundation and directed by Professor Michael J. Enright, a leading expert on international competition and strategy. It uses China as a case study to analyse the impact of FDI and illuminate the mutually beneficial partnership between investing companies and host economies. The results are reported in Enright’s recently published book, Developing China: The Remarkable Impact of Foreign Direct Investment, which was also supported by the Hinrich Foundation.
The study takes a multi-faceted approach – which includes tracing the evolution of China’s policies toward foreign investment, compiling key facts and figures, reviewing existing academic work and preparing various company and city case studies – to showcase a wide range of economic benefits to the local economy. The project involved a first of its kind economic impact analysis of foreign investment on China’s economy. The results indicate a substantially greater impact of foreign investment and foreign invested enterprises (FIEs) than what is generally understood.
“China’s experience with FDI shows that foreign investment can be enormously beneficial to host economies,” Professor Enright said of the project. “The multi-faceted approach provides a more comprehensive view of FDI and the impact it has had on the country than what is generally available. We believe the results are highly informative for policymakers, foreign-invested corporation managers, chambers of commerce, and communities elsewhere in the world.”
Key findings from the book include:
- China’s approach toward foreign investment has followed a step-by-step approach designed to gain the benefits of foreign investment while ensuring that the Chinese Government has retained control of the process and consistent with China’s evolving administrative capacity.
- While inward FDI flows account for a small portion of total investment in China, the economic impacts of foreign investment, the operations of FIEs, and the supply chains of FIEs accounts for roughly 33% of China’s GDP and 27% of China’s employment.
- Foreign companies have also contributed to modernisation of Chinese industries, creating suppliers and distributors, developing and transferring technology, bringing advanced management and business practices, linking China to world markets, improving the financial system, introducing sustainability and corporate social responsibility best practices, and providing inputs into the policy making process.
- Foreign companies have been instrumental in developing several of the most important industries in China, such as the electronics and auto industries, and have contributed greatly to the infrastructure and urban development in China.
- Case studies of Shenzhen, Shanghai, Tianjin, and Chongqing show that not only have foreign companies been instrumental in the development of these cities, but that major initiatives for the future also involve attracting foreign investment.
The study, along with Enright’s book, provide insights relevant to:
- Policymakers – The book describes the thoughtful approach taken towards foreign investment by the Chinese government and serves as a reminder of the critical role that foreign investment has played in China’s development to date and the important role it could play in the future.
- Investing Companies – The study provides foreign investing companies with a framework and tools to better quantify and describe the benefits they bring to host countries in order to “make their case” in a world in which foreign investment is increasingly challenged. It also highlights the fact that foreign investment can be mutually beneficial to investing companies and host countries.
- Developing Countries – The study provides a compelling example of a country that has reaped the benefits of foreign investment while minimising the potential negative effects, a framework and tool to better assess the impact of foreign investment on their own economies, and an understanding that foreign investment will only help a country meet its economic objectives if it is also beneficial to investing companies.
“Foreign Direct Investment in China has been an essential ingredient in China’s trade development. Professor Michael’s J. Enright’s findings come at a pivotal time as other developing countries, such as Vietnam, India, the Philippines and Indonesia, evaluate their approaches to FDI, while the developed world considers the role that foreign investment can play in infrastructure redevelopment and the creation of next-generation industries,” said Merle A. Hinrich. “It is our hope that both government policymakers and business executives will find this book a useful reference point as they chart their course for economic development and trade expansion.”
SOURCE: The Hinrich Foundation