Effect of Foreign Direct Investment on China's Economic Performance - Essay Example

The Chinese understand this very well. While relying mainly on its own forces to bring about modernization, China, as a developing country, has to win foreign assistance, actively develop economic cooperation, and reasonably use and absorb foreign technology useful to its overall economic development. For these reasons, China forged ahead with its decisive policy to set up Social and Economic Zones (SEZs) and designated fourteen opened cities to attract world resources. It is obvious that the SEZs and opened cities have performed the functions set out for them to the extent possible at this stage of their development.

Foreign capital, technology, and equipment have been introduced, competition has been promoted, and the training of personnel has occurred. Indeed, the SEZs and opened cities represent the focus of a substantial share of all foreign investment flows to China, and significant economic development has been achieved. . Indeed, the SEZs and opened cities represent the focus of a substantial share of all foreign investment flows to China, and significant economic development has been achieved. More important than their enormous vitality in absorbing and utilizing foreign capital and importing advanced technology, the SEZs and opened cities represent a significant pioneering undertaking by China in carrying out the policy of opening the country to the outside world and in serving as experimental centres in economic structural reform to create a completely new set of conditions for economic development.

As such, a new avenue has been opened, creating opportunities for foreign investors wishing to become involved in a rapidly expanding Chinese marketplaceStrong foreign investment inflows to China were not unique during the 1990s. Significant inflows to other Asian countries also occurred during the same period. Compared with representative neighbouring countries, investment flows into China were large in absolute amount but remained relatively small in terms of gross domestic product (GDP) and gross investment (GI).

Foreign equity investment into Singapore between 1990 and 1999 accounted for about 15 percent of GDP and financed more than one-third of Singapore's total capital expansion. The same ratios for China were only 0.7 and 1.8 percent, respectively. Even when compared with Malaysia, Thailand, and Indonesia, the ratios for China were extremely low. (Woo, 2001, 110)China enjoys several advantages in attracting foreign investment compared with other Asian countries. First, it has a large domestic market that provides potentially enormous opportunities for foreign investors.

Second, it has abundant natural