The lag effect of 1 and FDI is quite significant.
The lag effect of FDI is easy to understand. First of all, foreign direct investment is often not completed in one year, but after the first year of investment, additional investment is needed. Second, a large part of a region's total import and export trade comes from the existing foreign-funded enterprises in this region, which shows that foreign capital is often willing to enter areas where foreign capital is relatively concentrated. Because a region has accumulated more foreign capital, it shows that the investment environment in this region is better, or that the better foreign capital environment in this region is easier to be understood and recognized by other foreign businessmen. This situation often occurs in the actual utilization of foreign capital in various places, that is, the more foreign capital, the easier it is to introduce foreign capital, and the more difficult it is to attract foreign capital in areas with less foreign capital. Many scholars have paid attention to the positive and strong self-growth effect of foreign direct investment. Head and Ries (1996) put forward the aggregation effect, and Cheng and kwan( 1999) obtained the self-growth effect with different estimation methods.
If we can fully realize that FDI is a long-term investment behavior and its effect is not immediate, then the government can avoid some short-term decisions and consider the long-term impact of these policies when formulating and implementing relevant policies. More often, we need to be patient enough to test the effect of policies, and we should not suspend policies that may attract more investment just because the effect is not obvious in the first year. The same is true of the current policy of encouraging the central and western regions to attract foreign investment. Although the effect is not obvious at present, it needs more time to wait for it to play its role.
2. The policy orientation is still obvious.
In the early days of reform and opening up, it can be said that preferential policies (especially tax incentives) are an important weight to attract foreign investment, and special economic zones are the frontier positions to attract foreign investment. With the passage of time, more and more regions have implemented corresponding policies to attract foreign investment, so the role of policies has not been so important since the 1990s.
After China's entry into WTO, China's foreign capital utilization policy will change from preferential policy based on tax incentive mechanism to conventional policy based on fair competition mechanism. While moving towards national treatment from the perspective of reducing preferential treatment, China will also reduce market access restrictions (except for certain industries) and non-national treatment for foreign investors, improve the comprehensive investment environment, promote fair competition in the market, and move towards national treatment for foreign investors from another perspective. In the process of implementing the transformation, it must be completed step by step. If we want to do it in one step, it will inevitably bring a heavy blow to foreign confidence and lead to a decline in investment.
The quantity of labor force is still the key to attract foreign investment.
Undoubtedly, China, as the most populous country in the world, is exerting this advantage and playing a more obvious role in attracting FDI. The quantity of labor force is also a direct reflection of labor cost. Judging from the relationship between supply and demand, the oversupply makes China's labor price quite competitive in the international market. This is obvious. But it is worth noting that we can't stay at the stage of attracting investors only by the amount of labor. The task of future development should be to improve the quality of FDI and make it develop to a higher stage.
4. Infrastructure affects investment decisions.
It is not difficult to see that the difference between the central and western regions and the eastern coastal regions is not obvious if only the labor cost and policy influence are considered: in recent years, the government has implemented a series of policies to attract foreign investment in the central and western regions, and the central and western regions have more advantages in labor cost. So, how to explain the uneven distribution between regions? In addition to the lag effect of FDI mentioned above, we should also consider the level of regional infrastructure.
Foreign investors also consider the communication and transportation capacity of this area. Many foreign-funded enterprises in China belong to the incoming materials/processing type, so it is very important whether the transportation in this area is convenient, which means not only the transportation cost, but also the time cost. Because the radius of products and services is relatively large, a considerable part of raw materials of some foreign-funded enterprises need to be imported from abroad, and some products need to be shipped overseas. The convenience of transportation has naturally become one of the factors considered by foreign businessmen. No one wants to choose a place with inconvenient transportation and blocked information to invest and build a factory. Expensive transportation costs are often greater than the labor and policy advantages there, and the losses caused by information occlusion may be even greater.
Therefore, the infrastructure of a region can't keep up, and it is not enough to have preferential policies and cheap labor. This also confirms the old saying "If you want to be rich, build roads first". In order to really attract foreign investment, the vast central and western regions of China must also strive to improve infrastructure. The extension of highway and railway networks and the construction of communication networks need to be included in the plan. The government can invite tenders for infrastructure construction projects, which not only improves the infrastructure, but also achieves the purpose of attracting foreign investment, and helps foreign businessmen to understand this area so as to make investments in the future.
5. The role of education level has not been revealed.
Although many studies at home and abroad have pointed out that higher labor quality can attract more foreign investment (Borenztein, Gregorio, J-W Lee, 1997), we think that the influence of this factor is not so obvious in China. The main reason for this phenomenon is that at present, foreign investment in China is mainly concentrated in manufacturing and processing industries with low cultural requirements. From the industrial structure of foreign capital utilization in China, as of 1999, the primary industry accounts for 2.79% of the total investment projects, the secondary industry accounts for 73.0 1%, and the tertiary industry accounts for 24.20%. As far as the proportion of contracted foreign investment is concerned, the primary industry accounts for 1.76%, the secondary industry accounts for 59.56%, and the tertiary industry accounts for 38.67%. Judging from the export products of foreign-funded enterprises, most of them are manufactured goods. It is not difficult for us to imagine that such enterprises do not have high requirements for the cultural quality of their employees, and the real high-level leadership positions are still reserved for the people of the investing countries. This conclusion is also consistent with other empirical studies (Sun Jun, 2002).
It is sad for China to attract foreign investment only as a cheap labor market, but it is gratifying that with the passage of time and China's accession to the WTO, China's foreign investment will enter a new stage, and the foreign direct investment from the tertiary industry will gradually increase. The most obvious is the financial and insurance industry, whose opening has stimulated the demand for highly educated employees. Although at present, the impact of education on FDI is not obvious, it can be predicted that in the next few years, foreign-funded enterprises will have higher and higher requirements for employees' academic qualifications, and the investment in education is not immediate. The government should increase investment in education as soon as possible.
6, the negative impact of government consumption
In order to explain the influence of government consumption on FDI, it is necessary to first understand the definition of government consumption in China. Government consumption includes government expenditure on public services and government net expenditure on providing consumer goods and services to residents free of charge or at low prices. The former is equal to the output value of government services MINUS its operating income value; The latter is equal to the market value of consumer goods and services provided by the government to residents MINUS the value charged to residents. The output value of government services is equal to its recurrent business expenditure plus depreciation of fixed assets, in which the recurrent business expenditure is equal to the sum of goods and services purchased by government units (including administrative units and institutions that implement full and differential budget management) except fixed assets, remuneration paid by workers and taxes (production tax) paid for business activities.
At present, the biggest influence of government consumption on foreign-funded enterprises should be government procurement, and its negative influence can be seen from the objects of procurement. Taking 200 1 as an example, the purchase of goods is concentrated on some general products such as computers, cars and photocopiers. As far as these goods are concerned, the government still prefers domestic manufacturers, and most of them are still purchased from state-owned enterprises. The reason should be the policy of protecting domestic infant industries, which is actually done by many foreign governments. Although this is good news for state-owned enterprises, it is a big impact for foreign-funded enterprises. Moreover, this is not conducive to the long-term development of the market, so this practice can only be regarded as a stopgap measure. If it is implemented as a long-term policy, it will inevitably make state-owned enterprises inert, become flowers in the greenhouse, and cannot adapt to the fierce competitive environment, and foreign companies are likely to reduce their investment in China because of this unfair competitive environment.
In previous studies, the restraining effect of government consumption on FDI was rarely mentioned, mainly because the government consumption rate in China is low, which is equivalent to the average level of low-income countries and far below the average level in Asia. In 2000, the proportion of China government's final consumption in GDP was 1 1%, the average in low-income countries was 1 1%, the average in low-and middle-income countries was 12%, the average in high-income countries was 13%. Compared with the long-term average level of other countries, China's government consumption rate is also low. But in recent years, with the continuous increase of government consumption in China, the influence of this factor will be more obvious. Therefore, when formulating relevant policies in the future, we must take into account the inhibitory effect of government consumption on FDI.