The evolving role of foreign direct investment in China from 1978 onward

Abstract

From 1978 to the present day, China has developed its economy through the strategic use of foreign direct investment (FDI). This thesis demonstrates how Chinese economic reforms since 1978 have led to an increase in FDI inflows and illustrates how the government channeled those FDI flows to prioritize a process of economic development evolving from low-skilled to high-skilled sectors of the economy, evidenced by the country's evolving export profile over time. Through the examination of three different time periods, this thesis shows how shifts in government policy affected the inflows of FDI and how the government channeled this FDI. Between 1978 and 1989, the Chinese government funneled resources into non-strategic sectors, such as the textile industry. From 1989 to 2001, China reoriented its resources toward strategic sectors, including telecommunications. Finally, from 2001 to the present, China shifted its focus toward high–value added sectors of the economy, including automobiles, information and communications technology (ICT), and semiconductors. Overall, between 1978 and the present day, FDI has increased dramatically, reflecting China's economic priorities. The Chinese government's decision to use FDI to promote high–value added sectors showcases its ambitious and strategic policymaking in the service of rapid and sustained economic success.