China's Inward FDI Boom and the Greater Chinese Economy

Kevin H. Zhang

Chinese Economy, 2001, vol. 34, issue 1, 74-88

Abstract: >i>Although divided by political and military conflict and deep suspicion and mistrust, China, Taiwan, and Hong Kong have become one integrated economic region. This has been the result largely of flows of direct investment from Hong Kong (HKDI) and Taiwan (TDI) into China. China has become the largest recipient of foreign direct investment (FDI) among the developing world and the second largest globally. Most of the FDI received in China came from Hong Kong and Taiwan, not from the industrial countries that supply over 90 percent of world FDI. This paper investigates the determinants of China's FDI boom in the context of the greater Chinese economy. Evidence presented in the paper indicates that the large amount of HKDI and TDI has been associated with the greater Chinese economy and "Chinese connections." Empirical results suggest that HKDI and TDI were primarily motivated by cheap labor, incentive policies, and market access, along with the greater Chinese connections that provide Hong KongâTaiwan investors with operational advantages over other investors.>/i>

Date: 2001
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