Download Changes on FDI Regional Distribution in China

Changes on FDI Regional Distribution in China
SHEN Yijun
College of Business Administration, Zhejiang University of Technology, P.R.China, 310023
[email protected]
Abstract: Distinguished with former literatures about foreign direct investment (FDI) regional
convergence, this article introduces Theil Index to measure the so-called “(WCE) west-center-east”
regional segmentation. There are some evidences which show that the traditional WCE segmentation
didn’t agree with the great changes in FDI but core-periphery pattern in recent years. Finally, the author
gives some explanations on it.
Key words: Foreign Direct Investment (FDI), the Theil Index, regional Disparity Distribution,
Core-Periphery Pattern
1. problems
Large volume of FDI has entered in China since 1980s’ and played an important role in Economic
development (La Yongming etc, 2002). It not only made up the shortage of the domestic aids, exported
goods and created large employment opportunity, but also brought in advance technical and new concept
of management (Li Yi, 2000) and promoted productive efficiency, which makes the Economic growth.
According to figure which is the ration of FDI and GDP in areas of China from 1987 to 2004 (see figure
1.1), it clearly shows the disparity of FDI in China. What’s more, there are some changes on disparity of
FDI Regional Distribution in China in the past 20 years.
Table 1.1 the ration of FDI and GDP in areas of China from 1987 to 2004
the ration of FDI in areas of China
the ration of GDP in areas of China
areas
1987-1991
1992-1998
1999-2004
1987-1991 1992-1998 1999-2004
Shanghai
9.14%
8.63%
9.00%
4.39%
4.36%
4.62%
Jiangsu
4.05%
12.68%
16.79%
8.02%
8.77%
9.09%
Guangdong
41.28%
27.59%
21.89%
8.47%
9.45%
9.93%
…
…
…
…
…
…
…
Coast area1
Sanxi
92.48%
87.47%
87.25%
55.62%
58.06%
59.98%
2.46%
0.87%
0.59%
2.22%
1.76%
1.75%
Xinjiang
0.18%
0.11%
0.05%
1.45%
1.41%
1.37%
Sichuan
0.28%
1.67%
1.42%
4.76%
6.12%
5.76%
…
…
…
…
…
…
…
Mid and western
7.52%
12.53%
12.75%
44.38%
41.94%
40.02%
area
Data source http://www.cei.gov.cn/, the data is calculated by writers. Sicuan’data includes
Zhongqing’s. Xizhang’data is unlisted.
：
1
This article is sponsored by national natural aids project.(No.70373036)
2. Coast area here refers to Beijing, Tianjin, Shanghai, Liaoning, Shandong, Zhejiang, Guangdong, Fujian, Hainan,
Hebei, Guangxi. Mid and western area refers to Shanxi, Jiangxi, Hubei, Sicuan, Heilongjiang, Neimenggu, Jilin,
Anhui, Henan, Guizhou, Yunnan, Sanxi, Gansu, Qinghai, Ningxia, Xinjiang
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In the past decades, what are changes on FDI Regional Distribution in China? Is the traditional FDI
Regional convergence reasonable? What cause these changes? What’s its trend? The following parts are
the answers to these questions.
2. Methodology
Generally speaking, there are two ways to convey on research of regional difference. That is, absolute
difference indicators and relative difference indicators. The absolute difference indicators can be divided
into poor, bad, standard and so on. It is dimensionless, it affects not only the price level but also
variables, which make absolute difference Indicators lack of comparability in different regions in
different times. The relative difference indicator has no dimensionless, such as Mean Difference
coefficient, Coefficient of variation and Theil Index and so on, which has no effect on things such as
price level. Thus, we should choose the relative indicators when we explain regional difference and do
research on division of major provinces into groups in China, we need to look into situation of changes
and effects on provinces in group. Therefore, we finally choose the Theil Index as Actual indicators to
show the regional difference.
Theil Index is brought forward by Theil Henri in 1967 when he did research on the gap between nation’s
incomes2. That is, the total gap of national Incomes is the weighted aggregate the log ,of which is the
ration of national income share and population share in each country, the right is nation income share, it
can be showed as a formula as follow:
N
T =∑
i =1
yi
y p
log i / i
y
y p
“y” stands for total national income, “p’ stands for total national population, yi stands for province i’s
income, pi stands for province i’s population. It is obviously that the Theil Index is zero when income
is per capita allocation among N provinces
Theil index's greatest strength is that the total gap can be directly divided into two parts, one parts is the
gap between the group and the other parts is the gap between the groups. For example, China can be
divided into east, centre and west three regions. Then the country's total gap can be decomposed into the
gap between the region and the gap between the regions.
3
yi
y p
log i / i
y p
i =1 y
n
y
y p
T地区内,k = ∑ i log i / i , (k = 1, 2,3)
y p
i =1 y
T地区间 = ∑
(1)
(2)
3
3
y
y p
y  n y
y p 
T = T地区间 + T地区内 = ∑ i log i / i + ∑ k  ∑ ik log ik / ik  (3)
y p k =1 y  i =1 yk
yk pk 
i =1 y
Actually, the form of Theil index is the same in region and regions, the only difference is to regard
China as a whole body including the east, centre and west regions when we calculate the gap between
the regions; while we calculated the gap between region, the east, centre and west region are three
separate body as a whole, each region includes the provinces as internal groups.
y
We use i to replace FDI in formula (2), and then FDI of Theil index can be calculated. The
calculation formula is as follows:
n
TFDI = ∑
i =1
FDI i
 FDI i GDPi 
log 
/

FDI
 FDI GDP 
(4)
2
See Theil Henri (1967), Economics and Information Theory, Amsterdam, North Holland.
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Among them, FDI i and GDPi
stands for real foreign direct investment and the total gross
domestic product in region i in certain year, FDI
、 GDP
stands for national total volume.
3. Disparity of FDI distribution in China
3.1 in accordance with the WEC regional segmentation
We calculated the real Theil Index of FDI that had been absorbed in from 1987 to 2004 in China, and
we divided the whole nation into three parts- east, centre and west3 regions. use biodegradable Theil
index calculation to calculate the regions’ Theil Index (that is "T_between"), the three region’s Theil
Index (that is "T_within") and the east, centre and west regions’ Theil Index, the Theil index (that is
T_within, east stands for the eastern region; that is T_within, center stands for the central region; that is
T_within, west stands for the western region.). The results are as followed (see the figure 3.1-3.3). We
can find some phenomena by observation:
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
1987
1989
1991
1993
T_total
1995
1997
T_between
1999
2001
2003
T_within
Figure 3.1 “east, centre and west” region’s and regions’ FDI Theil Index in China
1. No matter the total Theil Index or region or the regions’ Theil Index has a trend to decline since 1987
(see figure 3.1). The total Theil Index is 0.42 in 1987 and 0.156 in 2004, so it dropped of 62.9%, so the
total trend is declining. The regions’ Theil Index is 0.143 in 1987 and 0.078, so it reduced 45.5%.
Region’s Theil Index is 0.278 in 1987 and 0.081 in 2004, so it decreased 70.9%. All of which proves
that foreign aids spread from one province to several provinces.
2. Another noticeable phenomenon is that the change of T_between index is relatively stable. From 1993
to 1999, it is almost unchanged. However, T_total index is 0.212 in 1999 and 0.156 in 2004, so it
dropped of 26.4%. Thus, we can found T_total and T_within index fell quickly. T_between index itself
changes little, but its proportion of the total index T_between index increased (see figure 3.2). In other
words, the total index dropped because of region’s index declining, that is, FDI in the east, centre and
west regions continued to spread their internal distribution. On contrary, the phenomena of relative
disparity distribution between the regions will become more clearly.
3. Compared each region’s Theil index furtherly (see Figure 3.3), T_within, west index declined sharply,
the highest point of which is 0.565 in 1989 and the lowest point of which is 0.047 in 2004, so it has a
3
East region: Beijing, tianjin, shanghai, hebei, liaoning, jiangsu, shangdong, zhejiang, hainan, Guangdong, guangxi.
Three regions: east area: heiloangjiang, shanxi, neimenggu, jilin, anhui, henna, jiangxi, hunan, hubei
Weas area: sicuan, guizhou, yunnan, saxi, gansu, Qinghai, ningxia, xinjiang. Sicuan includes zhongqing’s data.
,
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decline of 91.7%. T_within, east Index is relatively stable, the highest point of which is 0.299 in 1988
and the lowest point of which is 0.068 in 2004, so it has a decline of 77.3%. T_within, center index has a
special performance, which is 0.161 in 1987 and is 0.019 in 1997, and then it has a trend to rise to 0.163
in 2004, which has exceeded 1987. The unequal distribution index of FDI in the east and west regions
reduced gradually, while it increased in centre regions.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
比
分
百
1987
1989
1991
1993
T_between
1995
1997
1999
2001
2003
T_within
See figure 3.2 relative proportion of FDI in the region and regions
0.6
0.5
0.4
数
指
0.3
尔
泰0.2
0.1
0
1987
1989
T_between
1991
1993
1995
T_within,east
1997
1999
T_within,center
2001
2003
T_within,west
See figure 3.3 “east, centre and west” region’s Theil Index
3.2 According to Core-Periphery Pattern segmentation
Through inspection on FDI of WEC regional segmentation, we regard there is a need to reconsider
regional segmentation. The reasons are: Firstly, we found that the gap between the centre region has
increased since 1997. It proves that there is a deeper disparity in absorbing foreign aids in the region.
Second, T_between curve is very close to T_within curve after 1992, and then the two curves overlaps
after 2000 (see figure 3.1). This is furtherly explained that the "east, center and west” regional
segmentation is no longer well-reflected the feature that is the FDI distribution in China, especially after
1999. In addition, T_within index exceeded T_between index in 2004, which proved that the original the
"east, center and west” regional segmentation don’t meet the homogeneous segmentation principle4.
Inspired by theories of" Core-Periphery” of the new economic geography (Krugman, 1991), we try
dividing China into two regions, one is "core" and the other is "periphery". According to our estimation,
the "core" should focus on the places where produce most of the nation’s GDP and FDI.
With the proportion of FDI and GDP of each region in center place in China, We combine the
traditional ideas of "inland -coast” regional segmentation and the WCE regional segmentation. Then we
4
the homogeneous segmentation principle refers to segment
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make 9 provinces5 as the “core” place, such as Beijing, Tianjin, Shanghai, Liaoning, Jiangsu, Shandong,
Zhejiang, Guangdong, Fujian. And the "periphery" place are other 20 provinces6, such as Hainan, Hebei,
Guangxi, Shanxi, Jiangxi, Hunan, Hubei, Sichuan, Heilongjiang, Inner Mongolia, Jilin, Anhui, Henan,
Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang.
We have better segmentation than the WCE segmentation after segmenting these regions again. First,
T_within index moving away from T_between index after 1999, moreover, it would have a trend to
decline, it is not as the situation in Figure 3.1 any more, that the two curve nearly overlapped together.
Second, T_total Index and T_within index shows a trend to decline, but compared with T_within Index,
T_between index has been rising steadily. As a result, the disparity distribution of FDI (T_between
index) between “core” place and “periphery” place become the main contribution to the total disparity
distribution (T_total index).
As the above-mentioned, compared with WCE regional segmentation, the “core-periphery” regional
segmentation is more well-reflected the same feature of region and more accurate to account for FDI
distribution. However, T_within. p index display a clear upward trend after 2001(see figure 3.4). This
means that homogeneous distribution of FDI is weakened in each province of "periphery" place and the
differences increase. In fact, it shows the migration of “core-periphery” distribution.
0.6
0.5
0.4
0.3
0.2
0.1
0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
T_within,c
T_within,p
T_between
Figure 3.4 “core” and “periphery” and its internal Theil Index
(T-within,c stands for the gap between core place, T-within,p stands for the gap between periphery place)
3.3 migration of "core-periphery"
In order to prove the migration of “core-periphery” that mentioned above, we segment the “core” place
and “periphery” again after 1999. Through analysis on Table 1.1, we found that the proportion of FDI in
five provinces (shanxi, Inner Mongolia, Jiangxi and Hunan) has increased rapidly from 1999 to 2004 in
China, while the proportion of FDI in other provinces of “periphery” place decline. Thus, we have these
five provinces separated from the “periphery” place, and put them into ”core” place, which will expand
to 14 provinces (municipalities) and then the number of “ periphery” pace is reduced to 15 provinces.
After the re-adjustment of the "core-periphery" structure and we have figure 3.5:
5
According to this division, wo found the “core” place includes Bohai habour, chang angle, zhu angle.
Sicuan includes chengfou because of data but Tibet.
6
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0.6
0.5
0.4
0.3
0.2
0.1
0
1987
1988
1989
1990
1991
1992
1993
T_within,c
1994
1995
1996
T_within,p
1997
1998
1999
2000
2001
2002
2003
2004
T_between
Figure 3.5 “core” and “periphery” and its internal Theil Index (2).
(T-within, c stands for the gap between “core” place, T-within, p stands for the gap between “periphery” place)
We obtained the anticipation results after “core- periphery” segmentation. Firstly, T-within, c curve
continue to be downward, it didn’t change its direction with joining of 5 provinces. Secondly, the
upward trend of T-within,p curve didn’t go on ( compared with 3.4) and it went downward after 2002, in
2004 t-within, p index is lower than T-within,c Index. As a result, “core-periphery” segmentation keeps
the features that are the same characteristics in the same region and difference in different regions.
Migration of “core” place display in Chinese Map clearly (see figure 3.6), in the map blue stands for
the“ core” of 9 provinces, green stands for the “ core” of 14 provinces and cities, three circles stand for
Bohai harbor, Chang angle and Zhu angle respectively, the arrows stand for the “ core” place that spread
to neighborhood province.
Figure 3.6 “core” region migrations
4. An explanation on migration of “core-periphery” distribution
Why there is a relative stable characteristic of “core-periphery” structure in a certain period but change
to another relative stable “core-periphery” structure some times later? We can name “the
dynamic-stable migration of “core-periphery” theory for this change.
Before 1999, there had been a first stable “core-periphery” structure, the main reasons are as followed:
first, most of china had opened to outside from 1993 to 1998, but the places opening to outside earlier
have better facilities than the later ones, such as more service organizations, better software and
hardware environment and mature relative policies, which become main reasons why these foreign
enterprises don’t leave there.
Secondly, the "core" place has a cycle of cause-and-effect generated by the accumulation. With a long
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history of attracting FDI, the foreign enterprises in “core” place have adopted the "link to" or "linkages"
measures to help new investors. More and more new investors reinforced the cumulative effect deeply,
which make “core" place have more charming to foreign investors.
Thirdly, the labor movement to the “core” place promotes the gathering of foreign investment. Labor
movement was restricted to large extent because of the problem such as nationality management in
1980s.later in the 1990s, this restriction has been abolished gradually, whether manual or technical
workers are willing to or can work in “core” place. While foreign enterprises offer jobs, they also
provide a better working environment and many technical training opportunities. Lots of labor inflowing
ensures abundant labor supply in "core" place, which defuse pressure of wages rising because of the
relatively higher living cost and transport fees in "core" place. High Quality labor gathered in “core’
place, so it is difficult for foreign enterprises in the "periphery" place to employ skilled workers, on the
contrary, it prevents the “periphery” place from absorbing foreign investment.
Migration of “core- periphery” structure is because the proliferation of mutual strength has advantage on
gathering strength. Thus it breaks up the original “core- periphery” structure. As Mentioned above, FDI
have advantage in “core” place where there are opening to outside earlier, accumulation and
cause-and-effect cycle, enough labor supply and so on. However, as time goes by, we can easily find out
in late 20th century: First, the original advantage of the policy in “core” place faded gradually, while the
policies on FDI in “periphery” place are even more preferential. Secondly, the problem of tense natural
resources gradually deteriorated and come to the fore, such as water, electricity, and land supply don’t
meet the demand of Enterprises development, and so are the urban traffic road, the transformation and
expansion of ports and airports . Thirdly, the “core” place have higher standard on eco-environment
because of the economic and social development which make the enterprise have a higher costs of
sewage and exhaust treatment. Fourthly, most cities in the “core” place is being transformed, the bigger
the city is, the higher price the houses and oil ise as well as the increasing population with limited
education, health care and other relatively tight social resources are tight, all of which will lead to a rise
of living cost, ultimately it will result in a rise of labor costs. The above-mentioned factors are becoming
the proliferation to push FDI to “periphery” place. The result can be easily understood that, "new core"
place will be born near the "old core" periphery.
"Core-Periphery" Migration is a dynamic stability. It is a historical change and not an instantaneous
completion. From stable "core-periphery" structure to the "core" place expanding gradually, the
boundaries of "core" and "periphery" gradually blurred and t homogeneous feature is weaker, then "new
core" and a "new periphery" are born completely, all of which is a lengthy process. Of course, to a
country or a region, it is fully possible to appear many an adjacent “core” and “periphery” in geographic.
Even if in the same period, "core-periphery" is not the only way to segment. Researchers can make some
changes if necessary. Therefore, this paper is not only to provide research results, but also a research
method.
According to the above-mentioned research on "core-periphery" structure and the total changes of FDI
Theil index, we can divide changes of FDI distribution into three periods in China. The first period is
before 1994, during that time FDI Theil index decreased quickly, especially in 1992 and 1993. China
opening to outside deeply not only made the internal “core” place more dispersed, but narrower the
disparity distribution between “core” and “periphery”. The second period is from 1994 to 1999. At this
stage, the total FDI Theil index tends to slow a little volatility. Whether "WCE" or "core-periphery"
regional segmentation, and whether the gap between the region or gap between region are relatively
stable, which is due to the balance of gather strength and spread forces, it signs that stable
"core-periphery" structure shape. The third period is after 2000. The greatest characterized of this period
is a tendency to expand that is a disparity in the regions. Over the gap in region become an essential part
of the total gap. See From the "core-periphery" icon, though the total, regional and the regional of Theil
index began to decline further. However, the right-weighed disparity Index in total is rising in region.
This shows that China's further opening up, China's economy has been accelerated during the process of
international integration. Each region is opening up fully. We regard this as a period of "core-periphery"
migration.
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5. Conclusion and further research direction
Distinguished with former literatures about foreign direct investment (FDI) regional convergence, this
article introduces Theil Index to measure the so-called “(WCE) west-center-east” regional segmentation.
There are some evidences which show that the traditional WCE segmentation didn’t agree with the great
changes in FDI but core-periphery pattern in recent 20 years. Finally, the author gives some
explanations on it.
With China opening up deeplier after WTO entry, economic internationalization is accelerating. Each
region open to outside completely. This will promote the "core-periphery" structure migration. However,
during the internationalization, multinational corporations adjust and change strategies in China. MNC
have a deep effect on economic growth efficiency and economic security. Especially MNC have
negative impact on China's economic development more clearly. Chinese government will take the
appropriate measures to cope with the situation, how the "core-periphery" Patten that mentioned above
is. It is worthy us to do further research.
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3. Wang zhipeng, Li zinai, FDI, outflow effect and internal economic growth. world economic base.
2004, 3rd edition
4. Shen kunrong, international capital flow and stability of economic growth, 1998.china society and
science press.
5. Jiang xiaojuan, 1999 absorbing FDI and the change of economic formation management 2nd edition
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