Determinants of Regional Foreign Direct Investment Inflows in China

Determinants of regional foreign direct investment inflows in China from 2008 to 2019 are analysed in terms of the progress of the marketisation such as non-state-owned sectors’ share of output, investment and employment, the state of price controls in commodity markets, the state of development of factor markets such as finance and labour, and the state of development of the institutional system supporting the market economy system. Additionally, human capital development, infrastructure development and industrial structure are incorporated as control variables. Key results of the analysis of China’s regional FDI inflows include: 1) the progress of marketisation had a positive impact; 2) an increase in per capita GDP had a positive impact, and 3) the increase in the ratio of the secondary industry to GDP had a negative impact, while the tertiary industry had a positive impact. This result reflects the ongoing shift from vertical FDI in export-oriented labour-intensive manufacturing industries to horizontal FDI oriented toward sales to the local market.