- Low Wages for High-Quality Work
- The Final Piece of the Low-Wage Puzzle: Nonunion Labor
- Lax Health, Safety, and Environmental Regulations
- The Catalytic Role of Foreign Direct Investment
- Network Industrial Clustering in Chinas Ultimate Pin Factories
- Rampant Piracy and Counterfeiting
- Beggaring Thy Neighbors with a Chronically Undervalued Currency
- Massive Subsidies and the Great Protectionist Walls of China
- Summing It All Up
This chapter is from the book
This chapter is from the book
This chapter is from the book
The Catalytic Role of Foreign Direct Investment
[A] major driver of Chinese productivity gains has been the rapid growth of foreign and foreign-invested firms. These ventures represent foreign direct investment—long-term investments in the Chinese economy that are directly managed by a foreign entity. Close oversight of these operations by experienced foreign managers provides for the transfer of modern technical and managerial techniques, leading to higher productivity levels. In fact, joint ventures of foreign companies with Chinese firms are seven times as productive as state-owned operations and over four times as productive as domestically run private enterprises.
—The U.S. Conference Board14
[A]s capital floods in and modern plants are built in China, efficiencies improve dramatically. The productivity of private industry in China has grown an astounding 17% annually for five years.
—Business Week15
Cheap labor and lax health, safety, and environmental laws are giving China a direct competitive edge over many other nations, particularly in the developed world. However, these elements of the China Price also have indirectly helped attract a massive inflow of catalytic foreign direct investment (FDI). Since 1983, FDI has grown from less than $1 billion a year to more than $60 billion, and it is projected to soon reach $100 billion annually. The lion’s share of these funds comes from five main sources: Hong Kong, the United States, Japan, Korea, and Taiwan.
The FDI influx provides Chinese companies with two incredibly powerful catalysts for honing their competitive edge. First, this FDI is being spent on the most sophisticated and technically advanced manufacturing processes available. Such technology transfer means that China is getting much better equipment and machinery much sooner than other developing countries, which allows Chinese manufacturers to always produce more efficiently on the cutting edge. These FDI efficiencies are reflected in dramatic double-digit rates of productivity growth over the past decade.
Second, the catalytic FDI has brought with it some of the best managerial talent and managerial “best practices” from around the world. The result has been a winning combination: cheap Chinese labor on the production lines and local Chinese “scouts” who use their connections (known as quanxi) to grease the bureaucratic wheels coupled with the crème de la crème of foreign managerial talent in the middle and upper ranks.