This study seeks to examine the impact of Foreign Direct Investment (FDI) on the Chinese economy and the background of the economy’s restructuring, thereby suggesting a counter-strategy for Korean firms in accordance with the modified new policies in China.
Since 1992, China has initiated a modification of its marketing strategies of FDI, developing a third-country export-oriented policy based upon its labor-intensive industries. The gist of the modification is to diversify investment areas and investment types by opening up the Chinese domestic market.
The conventional Chinese policy on FDI faced several limitations, including: intensified income gaps among regions due to disproportionate investments; underdeveloped neighboring industries due to the concentration on labor-intensive industries; and lack of advanced technologies and management systems. To overcome these issues, the country has recently set new FDI guidelines as it opened its domestic market and abolished the dual exchange rate system. The main goal of the modified policy on attracting foreign capital firms is to revitalize investments in capital/technology-integrated industries, service industries and provinces throughout the country.
As a result of these policy changes, the “Super China Boom” continues as FDI is being concentrated in China. In 1992, the total amount of FDI reached $58.1 billion, an amount surpassing the total aggregate amount of the past 13 years, while the amount doubled in 1993 to $110.8 billion and recorded $81.4 billion (contract-based) FDI in 1994. These investments are being made by companies from all over the world, including Asia, Europe, and United States, which serves as evidence that global companies are certain of the bright future of the Chinese economy.
To be able to cope with the changes in China’s FDI policies, Korean companies will have to see its way clear to enter more various areas of the Chinese economy in terms of business types, such as the capital/technology-intensive industry, the service industry, the real estate industry, or the social overhead capital. Companies will have to target the domestic consumption market instead of targeting labor-intensive industries. In addition, investments will also have to be made in more various areas aside from the currently invested areas of Pohai or the three Northeastern provinces (Liaoning, Jilin, Heilongjiang). Instead, investments should be directed to the Huanan, Huadung economic areas or inland areas.
In terms of corporate management systems, performance-based bonuses, fixed duties, and efficiency-based promotion systems are some of the management tools that can easily adjust to the Chinese context. In addition, more attention needs to be directed to China’s changes in policies including the convertibility of currency.
중국의 외국인직접투자정책의 변화와 우리 기업의 대응전략(A study on the changes in China’s foreign direct investment policies and counterstrategies of Korean firms)
|Series Title; No||정책포럼 / 제87호(9515)|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Direct Investment|
|Holding||KDI; KDI School|