Foreign Direct Investment in China Manufacturing Industry –Transformation from a Low Tech to High Tech Manufacturing

Since China opened its economy to foreign investment in 1979, it has become the second largest Foreign Direct Investment (FDI) destination in the world after USA. Over the period 1997 to 2008, the manufacturing sector has dominated China’s FDI inflow, however, when manufacturing activity is bifurcated into low and high technology classes, it becomes evident that China is in a transition stage moving from FDI in traditional low-tech activity to a high-tech manufacturing environment. This paper attempts to summarise and explain the key determinants of FDI inflow across low and high technology manufacturing industry across three geographical regions of China. In the paper we empirically investigate the determinants of FDI high-low tech inflow by market size, labour cost, labour quality, and infrastructure. We also investigate the theoretical foundations for China’s transition from a low tech to a high tech manufacturing environment.