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The Causes And Future Of Taiwan And Hong Kong’s Fdi In Mainland China

1077 words - 5 pages

Shortly after Mao Zedong’s death in 1976, the People Republic of China embarked on a gradual process of economic reform and liberalization. Under the initial leadership of Deng Xiaoping, China quickly began to receive foreign direct investment (FDI) from around the world. Initially Taiwan, Hong Kong, and ethnically Chinese overseas regions of Asia, such as Singapore and Malaysia, were the largest contributors of FDI to Mainland China. Despite these regions’ large contribution to investment in China, there is a common misconception that most of the investment in China has come from the “western” countries, such as the United States and members of the European Union (EU). This ...view middle of the document...

Though Taiwan and Hong Kong have played an extremely important role in FDI and economic development in China, as the nature of China’s economic development changes, Taiwan and Hong Kong will begin to play a less substantive role as China’s economy begins to open up more to investment in other sectors, which will attract FDI from the US, EU, and Japan.
During the Maoist era, from 1949-1976, China was essentially cut off from foreign trade and investment. The 1950s saw quite a large amount of investment and technology sharing from the former Soviet Union to the PRC, but following the Sino-Soviet split, Soviet investment in China came to a halt. With little to no investment coming into China, the economy nearly stagnated and the average Chinese person’s standard of living did not increase. The dramatic halt of Soviet investment and aid was amplified further by the disastrous policies of the Great Leap Forward.
After years of strict forbiddance of FDI and trade with the “west,” China lifted the official ban on FDI in 1972, following US President Richard Nixon’s visit to the PRC. Despite the lifting of the ban, numerous restrictions remained on FDI and trade, such as a ban on external financing of FDI projects (Chien and Zhao, 237). China also began to promote the policy of “joint-ventures,” which would eventually lead to the allowance of wholly foreign owed enterprises. Though China’s reconciliation with the US was rooted in its desire to have a counterweight to the Soviet threat, China also viewed the US, the world’s largest economy, as a potential economic partner. Despite the fact the rapprochement between the US and China was one of the major contributors to economic liberalization in China, the US, along with the EU and Japan, has not been the largest contributor of FDI to China.
Following China’s economic liberalization in 1978, the PRC pursued an economic development policy that focused primarily on export growth, which attracted Taiwan and Hong Kong. Additionally, the type of FDI that the PRC permitted and encouraged was in the export sector, rather than the market sector (Naughton, 401). With their own economic development decades earlier, Hong Kong and Taiwan...

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