Round-Tripping Foreign Direct Investment in the People's Republic of China: Scale, Causes and Implications

Abstract

There is no doubt that part of foreign direct investment (FDI) inflows to the People’s Republic of China (PRC) FDI belongs to the return of Chinese capital that has gone abroad. The World Bank and others have estimated that the scale of this round tripping could be as high as a quarter of the total FDI inflows into the PRC. The prevailing view in much of East and South East Asia is that the PRC has attracted too much of global FDI at the cost of other developing economies. The estimations here indicate that the round-tripping FDI in the PRC is likely to be in the range of 30% to 50% of officially recorded flows, which implies that such concerns are greatly exaggerated. A large part of the capital originally created in PRC has gone abroad and has stayed abroad waiting for opportunities to return to the PRC. The pattern of capital creation and movement suggests that competition for FDI flows is not a zero-sum game. FDI inflows are not simply a fixed sum to be competed away among different countries. Instead, the PRC’s experience shows that FDI inflows are endogenously determined by the capacity of the host countries to create new capital.