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Research on the Utilization of Foreign Direct Investment in Yunnan Province of China

Wang Ludan, Cai Li*

International Business School, Dalian Nationalities University, Dalian, China

Abstract: Since driven by “Going Global” campaign, Yunnan province took advantages of rich natural resources and favorable location adjacent to South Asia and Southeast Asia. Furthermore, the environment for foreign investment in has improved a lot. As a result, the scale of FDI has increased significantly and many countries in the world especially Asian countries are attracted. However, there are still many problems with the utilization of FDI in . This paper analyzes the development and problems of the utilization of FDI in province and puts forward relevant countermeasures and suggestions for improving utilization of FDI in province.

Keywords: foreign direct investment, FDI, Yunnan, China

Received November 20, 2013; Revised December 13, 2013; Accepted December 30, 2013

Citation: Wang Ludan, Cai Li, Research on the Utilization of Foreign Direct Investment in Yunnan Province of China. International Journal of Econometrics and Financial Management, 2 (1). 1-6. January 2014. doi:10.12691/ijefm-2-1-1

1. Introduction

Swept by the wave of trade liberalization, service liberalization and investment liberalization, province, with unique location advantage, is playing an increasingly important role as a bridge between and . In 2011, China government brought the "twelfth five-year" plan to speed up the construction of Yunnan as “bridgehead” opening to the southwest China and ASEAN as well.

Considering the strategy upgrading from "channel" to "bridgehead", traditional international trade cannot satisfy the strategic requirements of any more. And it has been part of the topic to use foreign investment to stimulate economic growth, to inject vitality and ultimately to achieve leap development in Yunnan province. Nevertheless, the fact is that though foreign capital utilization in Yunnan province has been greatly improved, limitations still exist both internally and externally. During the new historical period, opportunities and challenges coexist in the utilization of FDI in province.

2. The Situation of Utilization of FDI in Yunnan Province

2.1. Utilization of FDI by Scale

Since 's reform and opening up, has increasingly integrated into the world economy along with the deepening of openness. The utilization scale and quality of foreign direct investment in province have been promoted and the simulative function of FDI has been strengthened. The actually utilized FDI in increased from 1.56 million in 1985 to 2.18896 billion in 2012 (1400 times or so), a jump increase actually. In addition, the utilization of FDI in Yunnan province shows distinctive characteristics in different periods:

The first phase (1985-1991): Affected by macroeconomic and political environment of China, the economy of Yunnan province, located in the southwestern border, was blocked, and the level of economic development was extremely low. The total amount of utilization of foreign investment within this period was $ 23.44 million (only $ 2,930,000 annually).

The second phase (1992-1996): With the introduction to foreign capital utilization in Yunnan Province. The actual utilization of FDI in Yunnan exceeded one hundred million U.S. dollars, reaching $ 203 million in 1994, as a remarkable result.

The third phase (1996-2005): With the deepening of reform and opening up in Yunnan Province, the amount of FDI actually used remained above one hundred million U.S. dollars, and the annual amount fluctuated between 100 million-200 million U.S. dollars.

The fourth phase (2006 - present): Since 2006, the scale of the utilization of foreign capital has reached a new level. Especially from 2010 to 2012 these three years, the startup of China - ASEAN Free Trade Area and the establishment of Lancang - Mekong Subregion promoted the rapid increase of FDI in Yunnan Province, nearly occupying the total foreign investment.

The scale of Yunnan FDI continues to improve, close to the national average level. This is shown according to the Performance Index of utilization of FDI in Yunnan.

Table 1. The Amount of Utilization of FDI in Yunnan, 1979-2012. (USD10, 000)

FDIi refers actually used amount of FDI of this region (i), FDIw refers actually used amount of FDI of the whole country. GDPi refers the gross domestic product of this region (i), GDPw refers the gross domestic product of the whole country.

Although FDI Performance Index was always less than 1, it showed upward trend with 2012, a record high. Through nearly a decade of construction in Yunnan Province, its total FDI share of China improved significantly. However, the total GDP proportion in Yunnan increased slowly. In 2012, for example, the GDP percentage of Yunnan Province was only 1.99%, while Shanghai, Guangdong and other regions above 20%.

Table 2. The Performance Index of Utilization of FDI in Yunnan, 2000-2012. (USD100000000)

2.2. Utilization of FDI by Mode

In 2000, FDI absorbed by wholly foreign-owned enterprises accounted for just 25.1% of the total amount in province, while the proportion was up to 68% in 2012. The trend of FDI in is obvious, which shows the enthusiasm of foreign investors in . Meanwhile, the proportion of foreign joint ventures is in a slight decline relatively. Nevertheless, both the level of development of utilization FDI in remain below the national average.

Table 3. Utilization of FDI in Yunnan Province by Mode, 2000-2012. (Unit: USD1000000)

2.3. Utilization of FDI by Country or Region

The total amount of FDI from has always been at the top. From 2001 to 2011, the utilized FDI from Hong Kong amounted to 3.032 billion U.S. dollars, accounting for nearly half of the total and it turns out to be the major source of foreign direct investment in . Until the end of 2011, there has been already 1500 HK-founded enterprises settled in . In 2012, FDI from was $ 1,747,000,000, accounting for 79.8% of the total. Hong Kong investment in can be traced back in 1984, and, until now, it has involved many industries, mainly in manufacturing, services, tourism, bio-pharmaceuticals, bio-resources development, energy, transportation, real estate, and urban infrastructure. Generally speaking, while FDI in Yunnan develops fast, risks and vulnerability exist, owing to the excessive concentration of FDI sources.

Table 4. Utilization of FDI in Yunnan by Country or Region, 2001-2011

In 2011, $ 185 million of foreign capital from British Virgin Islands settled in place, accounting for 10.68% of the Yunnan’s total; Barbados capital amounted to $ 60,000,000, representing 3.45% of total capital of Yunnan province. In 2012, in the top 10 regions (Hong Kong, Barbados, British Virgin Islands, Mauritius, Singapore, Switzerland, Myanmar, Taiwan, Indonesia, France), the actual investment accounted for more than 85% of the total amount of foreign capital actually used of Yunnan.

2.4. Utilization of FDI by Industry

It can be seen a majority of foreign direct investment in has long been concentrated in the secondary industry, accounting for more than 50% of FDI. However, utilization of FDI decreases gradually in secondary industry and shifts to tertiary industry. In 2012, total amount of FDI in Yunnan Province was up to $ 2,188,960,000, with $ 52,680,000 of animal husbandry and fishery,$ 704.3 million of secondary industry and $ 1,431,980,000 of tertiary industry, accounting for 2.41% ,32.18% ,65.42% respectively.

Yunnan FDI is mainly concentrated in manufacturing, real estate, as well as a small amount of wholesale and retail services. In particular, real estate is becoming a dominant force in attracting foreign investment. Real estate actually attacked 294 million U.S. dollars, accounting for 16.92 percent of the province's total foreign capital actually utilized in 2011 and the actual utilization of foreign capital amounted to 65,766 million U.S. dollars in 2012, accounting for 30.04 percent of the province's total. From the perspective of industry sector, in tobacco, pharmaceutical, real estate and urban development, tourism high-end market, energy development, mineral exploitation and processing, financial and some other supporting fields, foreign intervention is more concentrated.

Table 5. The Accumulated Amount and Project of FDI in Yunnan by Industry, 1999-2011. (Unit: USD100000000)

2.5. Geographical Distribution of FDI in Yunnan

Foreign direct investment involves nearly all the cities in , but is seriously imbalanced. The province's FDI is clearly centralized in the capital city, , which plays a leading role in the utilization of foreign capital. FDI absorbed by itself has occupied more than 70% of the total. Over $ 1.2 billion of foreign investment flew into in 2011, and more than that, the amount increased further in 2012, up to nearly $ 1.6 billion. Dehong, Pu'er, Baoshan, Diqing and some other cities come after , although with a big gap. The ability to invite and utilize FDI in some cities such as Pu'er, Lijiang, Xishuangbanna and Zhaotong, has improved a lot at an alarming rate, with gross amount basically doubling. By virtue of their superior resources (e.g.: tourism resources in Lijiang) these places are getting more popular among foreign investors.

Table 6. Regional Distribution of FDI in Yunnan, 2011- 2012. (USD 10,000)

2.6. Operating Performance of Foreign-funded Enterprises

There were 174 foreign-funded designated size industrial enterprises in Yunnan province in 2011, with the annually average number of employees of 48400, the industrial added value of RMB 1,449.1 billion, the industrial total output value of RMB 41.056 billion, the industrial sales output value of RMB 40.643 billion, the total enterprise assets amounted of RMB 40.891 billion, the revenue of principal business of RMB 43.19 billion, the total profits and taxes of RMB 7.504 billion, and the total profits of RMB 4.989 billion. The nine indicators for all designated size enterprises in accounted for 6.27%, 5.34%, 5.26%, 5.34%, 5.4%, 3.7%, 5.67%, 4.51% and 7.8% respectively. The small proportion declared the restrictions on FDI’s contribution to Yunnan local economy.

In 2012, the utilization of foreign capital in Yunnan was no more than $2.189 billion, accounting for 1.3% of total provincial GDP. At the same time, foreign companies achieved a large volume of import and export trade with $6.2 billion and about 3% of the whole province import and export value. Confined to foreign capital scale, the effect on the import and export of foreign enterprises was not as obvious.

Table 7. Major Economic Indicators of Foreign-funded Designated Size Industrial Enterprises in Yunnan, 2011. (RMB 100 million)

3. Recommended Policy for Improving the Utilization of FDI in Yunnan

3.1. Accelerating Infrastructure Constructions Development Further

Yunnan lags behind compared with the rest regions of China. Even compared with another four southeast provinces-, , Guangxi and , , the level of economic development of is ranking forth, narrowly higher than that of , and this situation has seriously affected the inflow of foreign capital. Yunnan government should actively further expand the transportation network involving road, railway, airline and water transport, rely on energy advantages, provide highly modern and information-based infrastructure services, and ultimately enhance the attractiveness to foreign investment. Above all, it is important to accelerate the development of supporting infrastructure of towns, and to complement and coordinate city and county economy, so that an overall and favorable environment for foreign investment can be created.

3.2. Optimizing the Industrial Structure of Yunnan

With its unique geographical advantages, is likely to create new and distinctive industrial clusters, enhance industrial cluster effect, improve industrial competitiveness, and further strengthen the driving forces of competitive industries and pillar industries in utilization of foreign investment.

Since the industrial distribution of FDI is unbalanced, it is necessary for Yunnan to broaden the field of foreign investment, focus on emerging industries, gradually open up health education and cultural industries, widen and deepen foreign investment, increase competition between foreign and state-owned enterprises as well as private enterprises, and optimize the province's economic structure and industrial structure. In addition, Yunnan can actively guide foreign capital to flow into tech industry and high-tech equipment manufacturing industry, enhance the province's economic capability of independent innovation with the help of capital and technological advantages, impose strict restrictions on foreign investment projects of high pollution or high energy consuming, and adhere to sustainable development.

3.3. Improving Government Efficiency

As a consequence of education backwardness, it is hard for most emplyeess to meet the needs of some ordinary foreign-funded enterprises in , let alone enterprises of emerging industry, which requires more technical and management skills. government should increase input in education, strengthen professional training for workers, and implement targeted personnel training programs. In terms of government’s policy, some incentive policies to reward talents should be drafted and carried out in order to build positive social atmosphere of innovation.

Yunnan government is supposed to deepen administrative reform on the principle of fairness, openness, efficiency, and sincerity, simplify procedures of approval for foreign-funded enterprises, increase administrative efficiency, deepen economic reform with the help of political reform aimed to provide effective guidance and supervision and improve the market operation efficiency. Furthermore, Yunnan should perfect foreign-related legal systems, which can improve legal environment.

4. Conclusion

In general, when the utilization of FDI in expands constantly, geographical distribution is getting more balanced and the structure and quality of using foreign capital is gradually optimized. Foreign-funded enterprises have been leading local enterprises to an international advanced level and have made an outstanding contribution to Yunnan GDP. With the promotion of regional economic cooperation, is going to fully perform leading function in open economic zones along the border. Foreign direct investment in is predicted to become an important support for economy development in . Through the combination of introduction of foreign capital, advanced technology and high level of management skills, the market and industrial structure of economy will be adjusted greatly, endogenous economic power will be strengthened, and most importantly, the province's social welfare will be surely improved.

Acknowledgement

This research is supported by National Social Science Foundation of China (11BMZ043), the Fundamental Research Funds for the Central Universities of China (ZJ12RWZD010, ZJ12RWQN018) and Sun Bird research project of students of Dalian Nationalities University.

References

[1]   | Yunnan Provincial Bureau of Statistics, China National Bureau of Statistics Survey Office in Yunnan, Yunnan Statistical Yearbook, China Statistics Press, Beijing, 2012, 124-130.
[2]   | Department of Trade and External Economic Relations Statistics, China National Bureau of Statistics, China Trade and External Economic Statistical Yearbook, China Statistics Press, 2012. 591-613.
[3]   | Yunnan Provincial Bureau of Statistics, China National Bureau of Statistics Survey Office in Yunnan, Yunnan Yearbook, Yunnan Yearbook Press, Kunming, 2012, 271-282.
[4]   | Du Qiong, Cha Yindi, "Analysis on potential of utilization of foreign direct investment in Yunnan", South China Economy, 21(2), 61-62, March 2005.
[5]   | Tao Xiaolong, Yang Xianming, "Research on the introduction of FDI projects and enhancement of utilization of FDI in Yunnan", Contemporary Economics, 199(7), 100-103, July 2008.