The Future of FDI in China

Abstract

In recent decades China's economy has thrived in an unprecedented fashion. Marked most notably by GDP growth rates above and beyond even the most prosperous economies, but, as established by John Whalley, as much as 40% of recent GDP growth is attributable solely to FDI inflows, the likes of which have historically flooded into the low-end manufacturing sector. Due to China's recently employed minimum wage legislation it no longer possesses the fundamental characteristic responsible for its past success in this field. By this rationale, an analysis of recent economic policies and their implications on the future of this contributor to GDP is of the utmost importance. Raising the ultimate question for this research: what steps must be taken in order to sustain large inflows of FDI, and maintain high GDP growth? To answer this question, this paper first reviews the last 60 years of Chinese economic reforms to provide a basis for what generated the previously successful economic model, followed by a profound assessment of China's most recent policies and how these policies will determine China's future, principally China's 12ili Five-Year Plan. Rostow's Growth Model was then applied to explain the practicality of policy changes resulting from the latest five-year plan. Following this theoretical approach, the use of past analytical studies will prove how these structural, sectoral, and institutional changes resulting from this growth stage will prolong economic growth in China. Furthermore, the examination of the most recent trends in China's FDI markets clearly demonstrate the triumphs of China's 12th Five year Plan and provide a glimpse of the future of the Chinese market, all while ratifying the hypothesis of this paper. The findings of this study conclude that China is now entering the 'Age of High Mass Consumption', and the ensuing promotion of new industries as a result of this stage of economic development has led to increased inflows of FDI into the service sector, high-end manufacturing sector, and high-tech sector, and consequently a very different approach to prolonged FDI inflows and GDP growth.