The Composition and Location Determinants of Foreign Direct Investment in China's Manufacturing

Abstract

The manufacturing sector has been the most important and the largest recipient of foreign direct investment (FDI) in China since 1979. This article examines the composition and the location determinants of FDI in China's manufacturing. The study shows that FDI in China's manufacturing is mainly concentrated in the labour-intensive, fast growing and export-oriented industries. Using regression analysis with the latest data, the study reveals that FDI is higher where there is access to resources of China's comparative advantage in general, and where it provides access to local resource endowments in the case of relatively labour-intensive activities in particular. The analysis also reveals that industries with larger market size and higher growth rate attracted relatively more inward FDI stocks.