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ECON 336 Naughton - Chapter 17.docx

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Economics (Arts)
ECON 336
Christopher Green

Chapter 17 Foreign Investment -Three Characteristics of Chinese FDI over the past decade: 1. FDI has been the predominant form by which China has accessed global capital 2. An unusually large proportion of FDI is in manufacturing, as opposed to services or resource exhaustion 3. FDI flows have predominantly come from other East Asian countries 17.1 FDI in the Chinese Economy - FDI came into china during the years before the 1989 Tiananmen Massacre but after Deng made some strong speeches in 1992 the funding started to pour in again. -The speeches helped because the institutions for FDI inflow were already in place and after 1992 China opened its domestic markets for foreign investment. -China’s GDP growth has been even more rapid than the growth of FDI inflows. (Share of FDI is shrinking) 17.2 “Zones”: The Gradual Liberalization of the Investment Regime Special Economic Zones (SEZs)= (first one in 1979) are regions in which foreign investment is encouraged by lower tax rates, fewer and simplified administrative customs procedures, and, most crucially, duty-free import of components and supplies. -They permitted incremental progress within a rigid system. They served as test beds for domestic economic reforms. Economic and Technological Development Zones (ETDZs)= Zones that were set up during and after the second wave of reform in 1984. They are very similar to SEZs. Insistent 17.3 The Investment Regime Today - China is pretty favorable for foreign investors. One advantage is the fact that projects can be granted by different parts of the government (Provincial, municipal and federal governments can all approval FDI projects). Investors can thus play localities against each other for favorable conditions. 17.4 Sources of Investment in China - By far the largest source of investments come from Hong Kong, Taiwan, Macau, and other free ports or tax havens. -Surprisingly the Triad (US and Canada, Japan, and the EU) only account for 25% of FDI where they normally account for 90% in other developing countries. 17.5 The
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