doc. Ing. Tomáš Dudáš, PhD.

China – Basic Information1,33 billion inhabitantsGDP –13,39 billion USD (PPP)GDP/c – 9 800 USD (PPP)GDP growth in 2013 – 7,7 %Labor force – 797,6 millionSector employment – 33,6-30,3-36,1Unemployment – 6,4 %????Poverty – 13,4 % of the population live

below the poverty line

China – important milestones1949 – The creation of People’s Republic of

China

1946-1976 The reign of Mao Zedong, which could be described by very strict communist policies

1978 – The start of economic reforms

1989 – Tienammen square massacre

2001 – China’s WTO accession

FDI in China after 19781978 – bad economic conditions (dual

society, where the urban population had 3x higher income than the rural population)

Economic pragmatism – the ideological background was not important

Gradualism – slow and gradual changes

1978 – law about joint ventures

FDI in China after 1978 1980 – the creation of 4 special economic zones –

Shenzen, Zhuhai, Shantou and Xiamen 1984 – 14 coastal cities were opened to the

foreign investors The government continued to add more special

economic zones, export processing zones and technological parks

Main problem – the Tienammen square massacre, but the FDI begun to grow dynamically in 90s

Up to 2000 China received FDI in amount of 395 billion USD in more than 363 thousand projects

From 1985 – 85 % of the FDI received came into the special economic zones

FDI in China after 1978Before 1990 the major part of the FDI

originated from Chinese living abroad (Between 1976 and 1996 57 % of the FDI inflow originated from Hong Kong and Macao)

Current estimates - HK a Macao 40%, USA 11%, EU 11%, Japan 8%, ASEAN 8%, Taiwan 6%, Other 16%

Some problems with the identification of the origins of the FDI

Problem – the dominant position of eastern China that received up to 2000 around 87 % of the total FDI

12

Most important investors in China in 1979-88 and 2008 (%)

0.5

0.6

0.6

0.6

0.7

1.1

1.9

4.7

8.5

70.8

France

Canada

United Kingdom

The Netherlands

Spain

West Germany

Singapore

Japan

United States

H.Kong/Macao

%

2008: US$ 92.4 B

%

1.6

2.1

2.8

3.1

3.4

3.5

4.0

4.8

17.3

44.4

Mauritius

Taiwan

Western Samoa

United States

South Korea

Cayman Islands

Japan

Singapore

British Virgin Islands

Hong Kong

%

1979-88:US$ 28.4B.

Sectoral structure of FDI inflows between 1976 and 2000

Agriculture – 1,5 %

Industry– 58,7 %

Services– 39,8 %

14

Main types of FDI in 2006 and 2008

0

10

20

30

40

50

60

70

80

% of Total

2006 23 3 74 1

2008 19 2 78 1

EJVs CJVs WFOEs FISVs

EJVs = equity joint ventures; CJVs = cooperative joint ventures; WFOEs = wholly foreign-owned enterprises; FISV=Foreign invested shareholding

ventures. See Glossary at the end of this file.

The main factors of the FDI inflows

Large internal market with growing purchasing power

Low cost labor force (approx. 1/3 of the costs in Mexico and 1/20 of the costs in USA)

Growing labor productivityGenerous state support of FDI inflows

(financial incentives, infrastructure, special economic zones)

Impact of the FDI inflows on the Chinese economyFDI inflow supports GDP growth – 1 %

increase in the FDI inflows leads to 0,05 % of GDP growth

Economic analyses show that currently FDI inflows contribute to the GDP growth by more than 20 %

Export growth – from 10 bln. USD in 1978 to 125 bln. in 2000

Companies with foreign ownership have a 50 % share on the total exports

The export structure of the companies in foreign ownership is more modern than the export structure of the domestic corporations

Impact of the FDI inflows on the Chinese economy In 1995 corporations with foreign ownership

employed around 10 million employees In 1998 it was already 17,5 millions and current

estimates are around 25-30 millions Analyses say that every 10 000 USD invested

created a new workplace FDI inflows had a huge positive impact on

China’s trade balance and currency reserves New technologies and managerial know-how The regions opened to foreign investors develop

very rapidly FDI played an important role in the fight against

poverty

Volkswagen in China – case study VW wanted to globalize the company, so they begun

the talks with the Chinese government in 1978 State owned enterprises dominated the Chinese

automotive industry those times (ex. FAW) – but low production

1978 – 55 assembly lines with an annual capacity of 150 thousand cars

In the early 80s the government made a decision – automotive industry should be one of the main pillars of the economy

1984 – Joint venture between VW and Shanghai Automobile Industry Corporation (SAIC)

VW invested 40 million USD in 1984 and 85 million USD more in 1985

Volkswagen in China – case study VW needed China because it had a weak position

outside Europe In 1985 the joint venture produced only 5 200 cars

(model Santana) – build from imported components The JV was profitable also for the Chinese partner –

SAIC was paying 18 800 USD for one car and was selling it for 37 600 USD on the market

1987 – the start of a new phase with more and more local subcontractors

1993 – production surpassed 100 000 cars per year Currently the competition on the market is very

strong – VW has to fight for its position on the market