China’s Inward Foreign Direct Investment Success: Southeast Asia in the Shadow of the Dragon

A key aspect of the success of globalisation is the emergence of the People’s Republic of China as a major player in the world economy. This paper explores not only the success of China as a location for foreign direct investment (FDI) but also examines some negative externalities of this success for neighbouring countries of Southeast Asia, in particular those of the Association of South East Asian Nations (ASEAN).1 Much has been written on the character of inward FDI to China (Child and Lu, 1996; Wei and Liu, 2001) and, particularly following its accession to the World Trade Organisation (WTO) in December 2001, the determinants of FDI and its effect on the domestic economy, in terms of, for example, growth (Buckley, Clegg, Wang and Cross, 2002) and productivity (Liu, Parker, Vaidya and Wei, 2001). Other work assesses the implications of China’s WTO accession for world merchandise trade flows (e.g., Lardy, 2002; Ianchovichina, Martin and Fukase, 2000; Ianchovichina and Martin, 2001). However, with the notable exception of a report by the ASEAN-China Expert Group on Economic Cooperation (ACEGEC, 2001), much less has been written on how multinational enterprises (MNEs) might adjust investment strategies in response to opportunities arising from China’s deepening integration into the global economic system post-WTO and what the consequences of this might be for developing countries like those of Southeast Asia as FDI recipients.