The effects of FDI on China’s economic development; case of Volkswagen in China

  • After 1978 economics reform, China started to absorb Foreign Direct Investment (FDI) and became the second biggest country in the world after USA for inward FDI. Almost all of famous and big Multi-National Companies (MNCs) invested in China. Huge domestic market, cheap labor force and government incentives make China an attractive place for foreign investors. However, both foreign investors and China have benefited from mutual relation. Yet, FDI has negative impact on China’s wage dispersion and income inequality. This thesis examines the positive and negative effects of FDI in China industrial sector during 1999-2010 using fact findings methodology. Main data is from China Statistical Year Book. The results of this research show that FDI has positive effects on GDP, labour and capital productivity, exports, and workers’ education and skill levels through technology spillover, management know how, and productivity and marketing competence. In contrast, FDI has negative effect on wage inequality and deepened wage gap between skilled and unskilled workers. Volkswagen is chosen as a case study to examine the effects of its investment on China's car industry. Volkswagen entered into China through joint venture with Chinese partners in 1984, only 6 years after economic reform. Volkswagen long term presence helps it to know Chinese market better and to expand its activity in different regions. Volkswagen with about 20 percent market share in China car industry has big role in spillover effect. High population and fast growing middle class in China motivate Volkswagen to focus only in domestic market. High demand for VW's passenger cars encouraged the company to invest immensely in supply chain in China which has positive effect on labour productivity, investment and workers’ education and skill levels in China's automotive industries. Although, there is no access to precise data about WV's wage structure, yet it is obvious that the wage gap in the company is serious and the company also exacerbates the income inequality in China.

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Metadaten
Author:Behzad Azarhoushang
URN:urn:nbn:de:kobv:b721-opus4-602
Document Type:Master's Thesis
Language:English
Date of Publication (online):2013/09/16
Date of first Publication:2013/09/16
Publishing Institution:Hochschulbibliothek HWR Berlin
Granting Institution:Hochschule für Wirtschaft und Recht Berlin
Release Date:2013/09/16
Institutes:Berlin Professional School (BPS)