The geographical distribution of foreign direct investment
(FDI) within China is determined mostly by GNP, infrastructure
development, level of general education, and coastal location.
In the past, FDI has been biased toward speculative investment,
especially the real estate sector; recently this bias has become
less pronounced.
Foreign direct investment (FDI) has played a major role in China's push toward a market-oriented economy.
As part of the first phase of reforms that began in 1978, the Chinese government experimented with preferential policies to attract foreign capital. Between 1978 and 1995, China received $128 billion in FDI. Recent inflows account for 40 percent of combined flows of FDI to all developing countries, making China the biggest developing country FDI recipient.
This record is impressive, but certain problems must be overcome if FDI is to continue to help sustain the country's record growth rate and further its economic development.
For one thing, FDI in China is highly concentrated geographically, and its sectoral distribution is highly uneven. Broadman and Sun empirically analyze the geographic determinants of FDI in China. They find that FDI's geographical distribution in China is determined mostly by GNP, infrastructure development, level of general education, and coastal location.
Although the sectoral distribution of FDI is coming into line with the rest of the world — indeed, moving toward the pattern in more developed countries — in the past, FDI has been biased toward speculative types of investment, especially the real estate sector.
This paper is a product of the Country Operations
Division, China and Mongolia Department, Asia and Pacific. Copies
of this paper are available free from the World Bank, 1818 H Street
NW, Washington, DC 20433. Please contact Joan Grigsby, room MC8-238,
telephone 202-458-2423, fax 202-522-1556, Internet address jgrigsby@worldbank.org.
(20 pages)
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