Foreign Manufacturing Multinationals and the Transformation of the Chinese Economy: New Measurements, New Perspectives
AbstractWhat is the relationship between foreign manufacturing multinational corporations (MNCs) and the expansion of indigenous technological and managerial technological capabilities among Chinese firms? China has been remarkably successful in designing industrial policies, joint venture requirements, and technology transfer pressures to use FDI to create indigenous national champions in a handful of prominent sectors: high speed rail transport, information technology, auto assembly, and an emerging civil aviation sector. But what is striking in the aggregate data is how relatively thin the layer of horizontal and vertical spillovers from foreign manufacturing multinationals to indigenous Chinese firms has proven to be. Despite the large size of manufacturing FDI inflows, the impact of multinational corporate investment in China has been largely confined to building plants that incorporate capital, technology, and managerial expertise controlled by the foreigner. As the skill-intensity of exports increases, the percentage of the value of the final product that derives from imported components rises sharply. China has remained a low value-added assembler of more sophisticated inputs imported from abroad--a “workbench” economy. Where do the gains from FDI in China end up? While manufacturing MNCs may build plants in China, the largest impact from deployment of worldwide earnings is to bolster production, employment, R&D, and local purchases in their home markets. For the United States the most recent data show that US-headquartered MNCs have 70 percent of their operations, make 89 percent of their purchases, spend 87 percent of their R&D dollars, and locate more than half of their workforce within the US economy--this is where most of the earnings from FDI in China are delivered.
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Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP11-11.
Date of creation: Apr 2011
Date of revision:
Foreign Direct Investment; International Investment; China; Multinational Corporations; Exports;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F52 - International Economics - - International Relations and International Political Economy - - - National Security; Economic Nationalism
- L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
- L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
- L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
- L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment
- L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
- L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
- O25 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-30 (All new papers)
- NEP-CSE-2011-04-30 (Economics of Strategic Management)
- NEP-TRA-2011-04-30 (Transition Economics)
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- Guilhem Fabre & Stephane Grumbach, 2012. "The World upside down, China's R&D and innovation strategy," Working Papers halshs-00686389, HAL.
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