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N° 2006-14 |
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| August 2006 |
| Foreign Direct Investment in China: Reward or Remedy? |
Olena Havrylchyk
Sandra Poncet |
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| In his book “Selling China” Huang (2003) states that a high level of foreign direct investment (FDI) in China is not necessarily a sign of strength, but can be partly attributed to the distortive nature of state policies that put restrictions on private enterprises. The Chinese financial system allocates resources to the least efficient firms – state-owned enterprises – while denying the same resources to Chinese private enterprises, forcing them to look for a foreign investor. We propose to analyze determinants of FDI in Chinese provinces to test the above hypothesis. We control for traditional determinants of FDI such as market access, labor costs, productivity, infrastructure, reform advances and banking sector size in order to assess the impact of inter-provincial heterogeneity in terms of the access that private enterprises have to credit. Our findings show support to the hypothesis that private enterprises use FDI in order to escape constraints imposed by the state dominated banking sector. |
Abstract |
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| China, Banking sector, FDI, Government intervention |
Keywords |
| F15, F22, G28 |
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