The Perils of Strategic Technological Development Policy: Two Failed Chinese Attempts, FDI and Techno-Nationalism

Abstract

Until recently, the Chinese approach to industrial and technological development focused on attracting foreign direct investment (FDI) to leapfrog the economy. FDI is a key development strategy utilised by developing countries with minimal capital reserves using cheap labour as a key resource. It facilitates the importation of capital, equipment and technology in order to build an industrial base and generate capital reserves from exports (Thun, 2006:3). Between 1985 and 2005, it is estimated that the annual net FDI inflows into China grew from US$1 billion to US$72 billion. In addition, it is estimated that within this period China absorbed more than US$600 billion in FDI. This is a figure that is 12 times higher than the total stock of FDI Japan received between 1945 and 2000. In the early 1990s, Beijing approved a new form of enterprise termed wholly foreign-owned enterprises (WFOEs). By the early 2000s, WFOEs attracted 65% of new FDI in China. Furthermore, since 1993, China has become the largest recipient of FDI among developing countries (Pan, 2009:16).