Since launching its policy of openness and reform some twenty years ago, China has demonstrated a special ability to develop its relations with the outside world, this being reflected in both the volume of visible trade and the amount of foreign capital inflows. As a result, since 1993 China has been the leading recipient of foreign direct investment (FDI) among developing countries.
Economic Opening and Growth in China, a new study which forms part of the OECD Development Centre’s research programme on "Globalisation and Regionalisation", investigates the effects of opening up to foreign capital on China’s economic growth and, particularly, on the evolution of inter-provincial disparities since the early 1980s.
A quantitative analysis of growth in China’s provinces identifies inflows of foreign capital as anessential component of the growth process, notably via the acquisition of advanced technology and expertise. Foreign direct investment is also one of the channels through which the market and competition have been introduced into the Chinese economy, boosting the productivity of local enterprises.
However, the fact that the different provinces have not all received the same flows of investment has resulted in increased disparities in wealth. The coastal provinces, more open to the outside world and with better developed infrastructure, attract more foreign investment. Also, as China develops, the productivity gains deriving from technology transfers will decrease.
The study demonstrates that, to stimulate growth over the longer term, China needs to build up its own capacity for technological innovation through research and development. For the authors, this means having an active education policy geared towards encouraging the development of human capacity by raising the quality of higher education and making basic education available to all.
©OECD Observer April 2000