Emergence as a Global Economic Power } 685
combined FDI almost equals that of the United States. FDI did not consti-
tute a large percentage of China’s GDP, but that relatively small percent-
age contributed powerfully in several main ways. FDI often transferred to
China products, production techniques and technologies not previously
produced or used there. Entrepreneurial Chinese businessmen learned
from these foreign enterprises, frequently by working for them for a period
of time and then copying or supplying the foreign enterprises. In this way,
foreign-introduced modern technologies and methods spread widely across
the non-foreign-invested sectors of China’s economy.
Shenzhen quickly emerged as a favorite venue for FDI. The proximity of
Shenzhen to Hong Kong—and to the rest of East Asia—made it fairly easy
for business people to commute to factories in China. Cultural similarities
among the East Asian countries, as well as linguistic and familial common-
alities among the PRC, Taiwan, Hong Kong, and Singapore and the ethnic
Chinese diaspora in other Southeast Asian countries, what came to be called
“greater China,” also encouraged investment. The strong incentives supplied
by PRC governments for foreign investment (cheap land, low taxes, priority
utility hook-ups, etc.) made it expedient for PRC entrepreneurs to figure out
ways to channel their investment through Hong Kong. Most of these special
incentives would be outlawed and phased out by China’s entry into the World
Trade Organization (WTO) in 2001, although actual enforcement of these
laws remained problematic. Such incentives provided a powerful magnet
Billions Constant 2005 US$25002000150010005000
China United
StatesJapan GermanyIndia Indonesia BrazilMexico Hong
Kong SAR,
ChinaUnited
KingdomFIGURE 25-4 FDI Cumulative Net Inflows, 2002–2012