(Reprinted from HKCER Letters, Vol. 81 Jan-Feb 2005)

  

The Giant Sucking Sound: Is China Diverting
Foreign Direct Investment
from East Asia and Latin America?

K.C. Fung, Hitomi Iizaka and Alan Siu

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1. Introduction

In recent years, China has become a favorite destination for foreign direct investment (FDI). In 2002, foreign direct investment in China reached US$53 billion. For 2003, despite the problems associated with SARS (Severe Acute Respiratory Syndrome), China received US$54 billion worth of foreign direct investment (UNCTAD 2004). China has become one of the top recipients of FDI in the world.

China is on its way to become "the factory of the world". The success of China in attracting foreign direct investment is no accident. One of the earliest strategic policy reforms of China was to open up the South to lure foreign investors. China's attempts to introduce markets into its economy go hand in hand with the liberalization of its FDI regime. In some ways, foreign direct investment reforms can be seen as the vanguard of domestic market reforms.


2. Some General Characteristics of Foreign Direct Investment in China

One of the most important elements of China's economic reform has been the promotion of foreign direct investment inflow. FDI in China has grown dramatically over the past two decades, since China initiated its "open-door" policy in 1978 (Table 1). When China first initiated its "open-door" policy, there was very little FDI inflow. It was not until the mid-1980s when FDI in China surged. In the early 1990s, it once again gained momentum. After it achieved an unprecedented growth between 1991 and 1993 however, both the number of projects and the contracted value began to go down in 1994. This downturn continued until the next big wave of FDI inflow hit China in 2000. In 2002, despite the widespread decline in FDI in the world, China experienced an increase in FDI inflow and overtook the United States to become the world's second largest destination of FDI.
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Table 1: Contracted and Realized FDI, 1979-2002

 

Contracted

Realized

Year

Amount

Growth Rate

Amount

Growth Rate

 

(US$ million)

(%)

(US$ million)

(%)

1979-1982

6,010

 

1,166

 

1983

1,732

 

636

 

1984

2,651

53.1

1,258

97.8

1985

5,932

123.8

1,661

32.0

1986

2,834

-52.2

1,874

12.8

1987

3,709

30.9

2,314

23.5

1988

5,297

42.8

3,194

38.0

1989

5,600

5.7

3,392

6.2

1990

6,596

17.8

3,487

2.8

1991

11,977

81.6

4,366

25.2

1992

58,124

385.3

11,007

152.1

1993

111,436

91.7

27,515

150.0

1994

82,680

-25.8

33,767

22.7

1995

91,282

10.4

37,521

11.1

1996

73,277

-19.7

41,725

11.2

1997

51,004

-30.4

45,257

8.5

1998

52,102

2.2

45,463

0.5

1999

41,223

-20.9

40,319

-11.3

2000

62,380

51.3

40,715

1.0

2001

69,195

10.9

46,878

15.1

2002

82,768

19.6

52,743

12.5

1979-2002

827,809

 

446,258

 

 

 

 

 

 

Source:  China Foreign Economic Statistical Yearbook.


Tables 2a and 2b present the contracted value and the realized value of FDI from 15 leading investing territories, respectively. One of the features of the inflow of FDI in China is the large contribution of investment from Hong Kong, Taiwan and Macau, especially during the late 1980s and the early 1990s. One of China's reform strategies is to first open up Special Economic Zones (SEZs) in the southeast part of China in an attempt to attract foreign capital from its neighbors. Four SEZs were established in two southeast coastal provinces, Guangdong and Fujian. In Guangdong province, three SEZs are established in Shenzhen, Zhuhai, and Shantou. Shenzhen was a small town sharing a border with the then British colony, Hong Kong. Zhuhai is located next to Macao. Shantou is another coastal town lies near the border between Guangdong and Fujian. The fourth SEZ, Xiamen in Fujian province was a relatively industrialized city, located near Taiwan.

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Table 2a: Contracted FDI by Source Country/Territory, 1983-2000

Country (Territory) (US$ million)

1983-1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

1992-2002

1983-2002

Total

50,667

58,735

111,436

82,680

91,282

73,276

51,004

52,102

41,223

62,380

69,195

82,768

776,080

826,747

Hong Kong, China

31,077

41,994

73,939

46,971

40,996

28,002

18,222

17,613

13,329

16,961

20,686

25,202

343,914

374,992

United States

4,649

3,142

6,813

6,010

7,471

6,916

4,937

6,484

6,016

8,001

7,515

8,156

71,460

76,109

Taiwan

0

5,548

9,965

5,395

5,879

5,141

2,814

2,982

3,374

4,042

6,914

6,741

58,795

58,795

Japan

3,688

2,200

2,960

4,440

7,592

5,131

3,401

2,749

2,591

3,681

5,420

5,298

45,464

49,152

Singapore

922

1,003

2,954

3,778

8,666

6,314

469

3,002

2,258

2,031

1,984

2,785

35,244

36,166

Virgin Islands

6

43

299

836

1,321

3,121

5,156

6,136

3,487

7,522

8,772

12,650

49,342

49,348

Korea

0

421

1,557

1,806

2,998

4,236

2,181

1,641

1,484

2,386

3,487

5,282

27,479

27,479

United Kingdom

785

287

1,988

2,748

3,577

2,542

1,446

1,682

1,085

834

1,516

1,142

18,848

19,633

Germany

1,168

134

249

1,233

1,660

998

613

2,375

939

2,900

1,171

915

13,188

14,355

France

245

292

236

248

642

1,235

1,081

489

470

634

566

879

6,773

7,018

Macau, China

0

0

2,815

1,721

1,115

449

359

307

427

348

503

632

8,675

8,675

Netherland

220

41

152

366

602

889

567

563

676

3,414

974

516

8,761

8,981

Canada

334

316

1,184

890

982

823

907

947

699

868

1,295

1,148

10,060

10,394

Malaysia

62

209

759

617

1,061

757

490

326

266

389

472

793

6,139

6,200

Australia

340

276

638

849

1,257

522

614

699

588

697

675

910

7,726

8,065

Share in total (%)

1983-1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

1992-2002

1983-2002

Total

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

Hong Kong, China

61.3

71.5

66.4

56.8

44.9

38.2

35.7

33.8

32.3

27.2

29.9

30.4

44.3

45.4

United States

9.2

5.3

6.1

7.3

8.2

9.4

9.7

12.4

14.6

12.8

10.9

9.9

9.2

9.2

Taiwan

0.0

9.4

8.9

6.5

6.4

7.0

5.5

5.7

8.2

6.5

10.0

8.1

7.6

7.1

Japan

7.3

3.7

2.7

5.4

8.3

7.0

6.7

5.3

6.3

5.9

7.8

6.4

5.9

5.9

Singapore

1.8

1.7

2.7

4.6

9.5

8.6

0.9

5.8

5.5

3.3

2.9

3.4

4.5

4.4

Virgin Islands

0.0

0.1

0.3

1.0

1.4

4.3

10.1

11.8

8.5

12.1

12.7

15.3

6.4

6.0

Korea

0.0

0.7

1.4

2.2

3.3

5.8

4.3

3.1

3.6

3.8

5.0

6.4

3.5

3.3

United Kingdom

1.5

0.5

1.8

3.3

3.9

3.5

2.8

3.2

2.6

1.3

2.2

1.4

2.4

2.4

Germany

2.3

0.2

0.2

1.5

1.8

1.4

1.2

4.6

2.3

4.6

1.7

1.1

1.7

1.7

France

0.5

0.5

0.2

0.3

0.7

1.7

2.1

0.9

1.1

1.0

0.8

1.1

0.9

0.8

Macau, China

0.0

0.0

2.5

2.1

1.2

0.6

0.7

0.6

1.0

0.6

0.7

0.8

1.1

1.0

Netherland

0.4

0.1

0.1

0.4

0.7

1.2

1.1

1.1

1.6

5.5

1.4

0.6

1.1

1.1

Canada

0.7

0.5

1.1

1.1

1.1

1.1

1.8

1.8

1.7

1.4

1.9

1.4

1.3

1.3

Malaysia

0.1

0.4

0.7

0.7

1.2

1.0

1.0

0.6

0.6

0.6

0.7

1.0

0.8

0.7

Australia

0.7

0.5

0.6

1.0

1.4

0.7

1.2

1.3

1.4

1.1

1.0

1.1

1.0

1.0

Above 15

85.8

95.2

95.6

94.2

94.0

91.5

84.8

92.1

91.4

87.7

89.5

88.3

91.7

91.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: China Statistical Yearbook, China Foreign Economic Statistical Yearbook, Almanac of China External Economies and Trade, various issues

Note: Data for 1983 - 1992 include data of Foreign Direct Investment and Other Foreign Investment.

 

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Table 2b: Contracted FDI by Source Country/Territory, 1983-2000
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Country (Territory) (US$ million)

1983-1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

1992-2002

1983-2002

Total

23,290

11,008

27,515

33,767

37,521

41,745

45,277

45,463

40,319

40,715

46,878

52,743

422,949

446,239

Hong Kong, China

13,676

7,507

17,275

19,665

20,060

20,677

20,632

18,508

16,363

15,500

16,717

17,861

190,767

204,442

United States

2,585

511

2,063

2,491

3,083

3,443

3,239

3,898

4,216

4,384

4,433

5,424

37,186

39,771

Taiwan

0

1,051

3,139

3,391

3,162

3,475

3,289

2,915

2,599

2,297

2,980

3,971

32,267

32,267

Japan

3,116

710

1,324

2,075

3,108

3,679

4,326

3,400

2,973

2,916

4,348

4,190

33,051

36,167

Singapore

270

122

490

1,180

1,851

2,244

2,606

3,404

2,642

2,172

2,144

2,337

21,193

21,463

Virgin Islands

0

0

0

0

304

538

1,717

4,031

2,659

3,833

5,042

6,117

24,241

24,241

Korea

0

119

374

723

1,043

1,358

2,142

1,803

1,275

1,490

2,152

2,721

15,199

15,199

United Kingdom

331

38

221

689

914

1,301

1,858

1,175

1,044

1,164

1,052

896

10,351

10,682

Germany

400

89

56

259

386

518

993

737

1,373

1,041

1,213

928

7,593

7,994

France

206

45

141

192

287

424

475

715

884

853

532

576

5,124

5,330

Macau, China

0

202

587

509

440

580

395

422

309

347

321

468

4,580

4,580

Netherland

64

28

84

111

114

125

414

719

542

789

776

572

4,274

4,338

Canada

68

58

137

216

257

338

344

317

314

280

441

588

3,290

3,358

Malaysia

6

25

91

201

259

460

382

340

238

203

263

368

2,830

2,835

Australia

192

35

110

188

233

194

314

272

263

309

336

381

2,634

2,827

Share in total (%)

1983-1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

1992-2002

1983-2002

Total

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

Hong Kong, China

58.7

68.2

62.8

58.2

53.5

49.5

45.6

40.7

40.6

38.1

35.7

33.9

45.1

45.8

United States

11.1

4.6

7.5

7.4

8.2

8.2

7.2

8.6

10.5

10.8

9.5

10.3

8.8

8.9

Taiwan

0.0

9.5

11.4

10.0

8.4

8.3

7.3

6.4

6.4

5.6

6.4

7.5

7.6

7.2

Japan

13.4

6.4

4.8

6.1

8.3

8.8

9.6

7.5

7.4

7.2

9.3

7.9

7.8

8.1

Singapore

1.2

1.1

1.8

3.5

4.9

5.4

5.8

7.5

6.6

5.3

4.6

4.4

5.0

4.8

Virgin Islands

0.0

0.0

0.0

0.0

0.8

1.3

3.8

8.9

6.6

9.4

10.8

11.6

5.7

5.4

Korea

0.0

1.1

1.4

2.1

2.8

3.3

4.7

4.0

3.2

3.7

4.6

5.2

3.6

3.4

United Kingdom

1.4

0.3

0.8

2.0

2.4

3.1

4.1

2.6

2.6

2.9

2.2

1.7

2.4

2.4

Germany

1.7

0.8

0.2

0.8

1.0

1.2

2.2

1.6

3.4

2.6

2.6

1.8

1.8

1.8

France

0.9

0.4

0.5

0.6

0.8

1.0

1.0

1.6

2.2

2.1

1.1

1.1

1.2

1.2

Macau, China

0.0

1.8

2.1

1.5

1.2

1.4

0.9

0.9

0.8

0.9

0.7

0.9

1.1

1.0

Netherland

0.3

0.3

0.3

0.3

0.3

0.3

0.9

1.6

1.3

1.9

1.7

1.1

1.0

1.0

Canada

0.3

0.5

0.5

0.6

0.7

0.8

0.8

0.7

0.8

0.7

0.9

1.1

0.8

0.8

Malaysia

0.0

0.2

0.3

0.6

0.7

1.1

0.8

0.7

0.6

0.5

0.6

0.7

0.7

0.6

Australia

0.8

0.3

0.4

0.6

0.6

0.5

0.7

0.6

0.7

0.8

0.7

0.7

0.6

0.6

Above 15

89.8

95.8

94.8

94.4

94.6

94.3

95.2

93.8

93.5

92.3

91.2

89.9

93.3

93.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: China Statistical Yearbook, China Foreign Economic Statistical Yearbook, Almanac of China External Economies and Trade, various issues.

Note: Data for 1983 - 1986 include data of Foreign Direct Investment and Other Foreign Investment.

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Hong Kong has by far been the biggest investor in China throughout the years. The investment from Hong Kong to China has increased dramatically since the early 1980s. Between 1983 and 2002, the contracted amount and the realized amount of FDI from Hong Kong amount to more than US$375 billion and US$204 billion respectively. These figures account for 45.4% and 45.8% of the total respective contracted amount and realized amount of FDI from the world. However, it has been frequently estimated that a significant portion of investment from Hong Kong to China originates from China itself or from countries outside Hong Kong. A large amount of China's capital outflow is channeled to Chinese firms located in Hong Kong and finds its way back to China as FDI. This type of "round tripping" of funds is mostly used to escape regulations such as barriers to trade or to gain eligibility to incentives available to only foreign investors (e.g. tax concessions). According to the World Bank (2002), round tripping accounts for twenty to thirty percent of FDI in China.

Between 1983 and 2002, Singapore and Macao ranked 6th and 12th in total contracted FDI in China, and they ranked 6th and 11th respectively in total realized FDI. The presence of both economies appears to have been stronger in the beginning of the 1990's.

While several East and Southeast Asian economies are among the top investors in China, none of the Latin American economies is among the top fifteen foreign investors in China. In the last few years, prices of commodities and raw materials such as copper, aluminum, cement, steel, petroleum and soybeans have soared partly due to the breakneck pace of China's industrialization. This seems to have benefited countries such as Brazil, Argentina and Venezuela as China became one of their largest export markets. But overall, the economic relationship between China and Latin America, in contrast to that between China and East and Southeast Asia is still at a very low stage. Another difference between the Asian and Latin American economies is that there is increasing evidence that a vertical production and business network is thriving among the Asian economies (including China) but not among the Latin American economies.1

 
3. FDI Inflows to East Asia and Latin America: The China Effect

While increases in FDI from the outside world are complementary to China's efforts to modernize its economy, many developing countries in the world seem to be very worried about the prospects of a rising China that absorbs more and more of the investment from major multinationals. Several governments in Asia and Latin America have publicly noted that the emergence of China has diverted direct investment away from their economies. Policymakers and analysts in the developing world are convinced that the rise of China has contributed to the "hollowing out" phenomenon, with foreign and domestic investors leaving their countries and investing in China instead. This in turn has led to continued loss of manufacturing industries and jobs, further weakening the vitality of these economies. Popular press has reported that in 2002, Mexico lost more than 200,000 jobs in the maquiladora assembly industry along the U.S.-Mexico border, as more than 300 companies have moved to China (Miami Herald 2003).

In this newsletter, we would like to examine the question of whether the successful FDI policy of China has diverted foreign direct investment away from a group of Asian and Latin American economies. Theoretically, a growing China can add to other countries' direct investments by creating more opportunities for production-networking and raising the need for raw materials and resources. At the same time, the extremely low Chinese labor costs may lure multinationals away from other Asian and Latin American sites when the foreign corporations consider alternative locations for low-cost export platforms. The net effect on FDI inflows to other economies cannot be determined without econometric studies.

There is a growing number of studies on the potential Chinese FDI diversion. In a series of papers, Chantasasawat, Fung, Iizaka and Siu (2003, 2004a, 2004b and 2004c), Eichengreen and Tong (2005) and Zhou and Lall (2005) provided econometric evidence concerning the impact of the rise of China on the FDI inflows to East Asian and Latin America.2 The literature so far paints a consistent picture and come to similar conclusions with respect to East Asia and Latin America. For this newsletter, we draw mainly from the research work of Chantasasawat, Fung, Iizaka and Siu (2003, 2004a, 2004b, 2004c).

In Asia, the economies we considered include Hong Kong, Taiwan, Republic of Korea, Singapore, Malaysia, Indonesia, Philippines and Thailand. In Latin America, the economies we studied include Argentina, Bolivia, Brazil, Chile, Columbia, Costa Rica, Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela.

The research strategy in these papers is to control for the standard determinants of foreign direct investment and then add a proxy to represent "the China Effect". The researchers then investigate the sign, significance and magnitude of such a "China Effect".


4. Recent Policy Concerns in Asia and Latin America

It is not hard to find various analysts, commentators and policymakers in Asia and in Latin America who have voiced concerns about the emergence of China and that China is adversely affecting direct investment flows into their economies. In November 2002, Singaporean Deputy Prime Minister Lee Hsien Loong (who has since become the Prime Minister of Singapore) commented that "Southeast Asian countries are under intense competitive pressure, as their former activities, especially labor-intensive manufacturing, migrate to China. One indicator of this massive shift is the fact that Southeast Asia used to attract twice as much foreign direct investment as Northeast Asia, but the ratio is reversed." (ChinaOnline November 14, 2002). According to KOTRA, the state-run trade and investment promotion agency of the Republic of Korea, the rate of foreign direct investment in most Asian countries is falling as global investors are being drawn to invest in China (Republic of Korea Times August 27, 2002). World Economic Forum director for Asia, Frank J. Richter, said if the Asian countries do not take prudent and pragmatic steps to be as competitive as China, the foreign direct investment flows into these economies would be adversely affected (New Straits Times-Management Times March 9, 2002). Furthermore, Taiwan's Vice Premier Lin Hsin-I said that facing the rapid rise of the Mainland Chinese economy, Taiwan would have to take effective measures to increase its competitiveness. Taiwan has to implement the "go south" policy to encourage Taiwan to switch their investments from the Mainland to Southeast Asian countries (Taiwanese Central News Agency November 21, 2002).

In Latin America, Cesar Gavina, head of the 34-country Organization of American States, was quoted to have said, "The fear of China is floating in the atmosphere here. It has become a challenge to the Americas not only because of cheap labor, but also on the skilled labor, technological and foreign investment front." Panama's Vice Minister of Foreign Affairs, Nivia Rossana Casrellen, said, "The FTAA is moving ahead because of a collective will to speed up development and a collective fear of China" (Miami Herald November 21, 2003). According to Businessweek's Mexico City Bureau Chief, Geri Smith, "China has siphoned precious investment and jobs from Mexico..." (Businessweek November 8, 2004).


5. Empirical Results: Is China Diverting FDI from East Asian and Latin American Economies?

Is China's FDI policy a friend or an enemy to other developing economies in Asia and in Latin America? As mentioned earlier, theoretically, the emergence of China can have both investment-creating effects as well as investment-diverting effects. For our own research, we use data for eight Asian economies (Hong Kong, Taiwan, Republic of Korea, Singapore, Malaysia, Philippines, Indonesia and Thailand) and data from sixteen Latin American economies (Argentina, Bolivia, Brazil, Chile, Columbia, Costa Rica, Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela) and estimate the determinants of foreign direct investment inflows in these economies.

The standard determinants we consider include market size variables (real GDP growth rates, growth rates of real per capita income and GDP), policy variables (the degree of openness, corporate tax rates, import duties, quality of infrastructure) institutional characteristics (indices of corruption, degrees of government stability, indices of the rule of law), labor market conditions (illiteracy rates and wage rates) as well as the global supply of FDI. To estimate the China Effect, we include in the empirical equations the levels of China's inward foreign direct investment. As China's foreign direct investment should also be dependent on foreign direct investment in other Asian and Latin American economies and other similar policy and institutional factors, we use a panel regression simultaneous equation model to estimate our coefficients, paying particular attention to the estimated coefficient of the China Effect.

The main results of our paper are as follows. First, in terms of the levels of foreign direct investment flows, the China Effect is positive for the East and Southeast Asian economies. For the Latin American economies, the China Effect is mostly insignificant and occasionally mildly positive. In other words, foreign direct investments to our Asian economies are complementary to direct investment into China, while foreign direct investments to the Latin American economies have little systematic relationship with direct investment going into China.

These results are consistent with the view that there is a thick and growing production network within these Asian economies and China, but except for Mexico, there is relatively little vertical production-sharing among the Latin American countries. Thus multinationals may want to set up factories and distribution network in both China and other parts of Asia to accommodate their increasingly sophisticated global supply chains, but they do not seem to view China and Latin America systematically as rival, alternative sites of business networks. For example, the top Chinese imports and exports to the East and Southeast Asian economies are generally in the electrical equipment industry (Table 3).3

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Table 3: China's Two-Way Trade of Electric Equipment with its Neighbors, 2003 

 

Exports of Electrical Equipment to China

(US$1,000)

Rank in Exports to China

Imports of Electrical Equipment from China

(US$1,000)

Rank in Imports from China

Taiwan

17,075,435

 

1

2,470,679

 

1

Republic of Korea

13,224,831

 

1

4,122,382

 

1

Singapore

3,432,677

 

1

2,869,225

 

1

Thailand

1,984,551

 

2

888,914

 

2

Malaysia

7,179,539

 

1

1,587,136

 

2

Philippines

4,251,766

 

1

890,895

 

1

Indonesia

346,577

 

7

632,660

 

3

 

 

 

 

 

Source: Fung (2004), China's Custom Statistics Monthly, 2003, December.

 

Second, in terms of the shares of developing countries' foreign direct investments, the China effect is negative for both the East and Southeast Asian economies as well as for the Latin American economies. Thus, while both the level of China's foreign direct investment and the levels of foreign direct investments of our Asian economies are increasing together and that there is no strong relationship between foreign direct investment into China and into Latin America, an increase in China's investment is associated with a decline in the Asian and Latin American shares of foreign direct investment of the developing economies.

Third, the China effect is in general not the most important factor determining the inflows of foreign direct investments into these economies. Specifically, market size variables and policy variables such as the lower corporate taxes and higher degrees of openness play larger roles in attracting investment.


References:

Businessweek, "How China Opened My Eyes," November 8, 2004, p.66.

Chantasasawat, Busakorn, K.C. Fung, Hitomi Iizaka and Alan Siu, 2003, "The Giant Sucking Sound: Is China Diverting Foreign Direct Investment from Other Asian Economies?" Asian Economic Papers, forthcoming.

Chantasasawat, Busakorn, K.C. Fung, Hitomi Iizaka and Alan Siu, 2004a, "International Competition for Foreign Direct Investment: The Case of China," COE-RES Discussion Paper Series No.22, Graduate School of Economics and Institute of Economic Research, Hitotsubashi University, Tokyo, Japan.

Chantasasawat, Busakorn, K.C. Fung, Hitomi Iizaka and Alan Siu, 2004b "Foreign Direct Investment in East Asia and Latin America: Is There a PRC Effect?" Asian Development Bank Institute (ADBI) Discussion Paper #17, November.

Chantasasawat, Busakorn, K.C. Fung, Hitomi Iizaka and Alan Siu, 2004c "Foreign Direct Investment in East Asia and China," Stanford Center for International Development (SCID) Working Paper #233, November.

ChinaOnline, "China's Rise is the Most Dramatic Change in Asia," November 14, 2002.

Eichengreen, Barry and Hui Tong, 2005, "Is China's FDI Coming at the Expense of Other Countries?" mimeo, University of California, Berkeley and Bank of England.

Korea Times, "Foreign Investment Likely to Fall," August 27, 2002.

Lall, Sanjaya and John Weiss, 2004, "People's Republic of China's Competitive Threat to Latin America: An Analysis for 1990-2002," ADB Institute Discussion Paper No. 14.

Mckibbin, Warwick J. and Wing Thye Woo, "The Consequences of China's WTO Accession for its neighbors." Asian Economic Papers 2:2, 2003

Miami Hearld, "Fear of 'Made in China' speeds up Deal," November, 21, 2003.

New Straits Times-Management Times. "Future Flows of FDI into Asian Economies to depend on China," March 9, 2002.

Taiwanese Central News Agency. "Taiwan to Improve Competitiveness," November 21, 2002.

Weiss, John, 2004, "People's Republic of China and Its Neighbors: Partners or Competitors for Trade and Investment?" ADB Institute Discussion Paper No.13, Tokyo: Japan.

World Bank 2002. "Global Development Finance 2002," pp. 41, Washington, D.C.

Zhou, Yuping and Sanjaya Lall, "The Impact of China's FDI Surge on FDI in South-East Asia: Panel Data Analysis for 1986-2001," mimeo, Oxford University, United Kingdom.


Notes:

1 There is of course a production network between Mexico and the United States. But in this respect, Mexico is quite different from the rest of Latin America.

2 Mckibbin and Woo (2003) provides a calibration model to judge the effect of China's joining the WTO on its neighbors.

3 See Weiss (2004) and Lall and Weiss (2004) for analysis of trade relationship between China and East Asia as well as between China and Latin America.

 

K.C. Fung is Professor of Economics, University of California, Santa Cruz and Senior Research Fellow, Hong Kong Institute of Economics and Business Strategy (HIEBS), The University of Hong Kong.

Hitomi Iizaka is Research Associate, University of California, Santa Cruz.

Alan Siu is the Deputy Director of the HK Institute of Economics and Business Strategy and Associate Professor, School of Economics and Finance of The University of Hong Kong.

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