The interaction between the hottest global capital

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The interaction between global capital flows and China's reform

China's development trend is determined by the interaction of labor structure and institutional characteristics

global capital flows to developing countries are basically determined by two factors: profit opportunities in developing economies and physical and institutional obstacles in International capital flows. The progress of transportation and communication technology has greatly reduced the cost of transnational capital flows, and the global expansion of knowledge has also filled the less developed countries with new profit opportunities

since China implemented reform and opening up, the obstacles to international trade and investment have gradually decreased. China's FDI has increased steadily every year since 1990, and has exceeded US $40billion every year since 1996. This has put pressure on other developing countries, especially Asian neighbors. The total population of India, Indonesia, Malaysia, the Philippines, South Korea, Singapore and Thailand exceeded that of China. By the peak of 1997, its FDI was only $33billion. After the Asian financial crisis, its FDI fell sharply to US $18billion in 2001. In 2002, one year after China's accession to the WTO, China's FDI (foreign direct investment) was US $52.7 billion, surpassing the United States and becoming the most attractive country for FDI in the world

obviously, China has won the competition of introducing FDI at present. The most important advantage for China to attract foreign investment lies in its low-cost labor force (including ordinary labor force and knowledge-based talents). China's labor supply is almost unlimited for demand, which has kept the labor price stable at a fairly low level. China's population accounts for one fifth of the world's, and is in its mature stage. 70% of the population is in the working age of 15-65 years old, which is among the highest levels in the world. The average level of other developing countries is 60%, but the proportion of people under the age of 15 is as high as 36%, 13 percentage points higher than that of China; The average level of developed countries is 67%, but the proportion of their elderly population is as high as 15%, which is eight percentage points higher than that of China

this demographic characteristic has been a particularly favorable factor for China's rapid development in the past 20 years and the next 20 years, which will not change due to other policy and institutional factors. With globalization and the continued prosperity of developed countries after World War II, the advantage of this demographic structure is further reflected. The elderly population in developed countries need to invest their retirement savings accumulated in the past half century in a young and productive country such as China. The population structure of China today is very similar to that of Japan in 1975. Japan has maintained a high-speed growth rate for 15 years after 1975, which means that China's growth will benefit from it for at least the next 10 years

The rapid improvement of infrastructure conditions is also an important factor for China to attract foreign investment. China's routes have surpassed the United States, and the length of highways is second only to the United States. China's enthusiasm for infrastructure investment is largely due to the fact that investment in infrastructure is more valuable than investment in inactive state-owned enterprises. Infrastructure projects led by the government may not bring direct profits, but it will undoubtedly be conducive to the flow of labor, goods and capital, which provides a solid material foundation for China's further integration into the global market economy. Not only the Pearl River Delta region, the Yangtze River Delta region and other key economic centers have good infrastructure, but also the central and western provinces have also made great efforts to improve their investment environment, investing in many highways, railways, airports and other infrastructure. Although these facilities in the central and western regions have not achieved the desired effect in attracting foreign investment, the poor people in the central and western regions use these infrastructure to further flow to the East. Interestingly, this plan has produced unexpected effects: remittances, knowledge and skills brought by labor mobility have a huge impact on the development of their hometown

the continuous reduction of transportation costs and transaction costs connects China's rural labor force, a huge reserve, with the eastern coastal areas. In the context of economic globalization, this means that China's labor force will work directly or indirectly for the global market. However, their wages are difficult to be raised due to the abundant labor supply: the income of rural labor is determined by the basic needs of maintaining life; Urban income is only slightly higher than this level. Due to the restriction of the urban wage level and the inflow of rural surplus labor into the city and the rising unemployment rate of the city itself, it will stabilize at a very low level for a considerable period of time in the future

China not only has an unlimited supply of ordinary labor, but also has a large reserve of knowledge-based talents with relatively low costs. China has not only made great progress in basic education, but also developed higher education rapidly. China trains more engineers in one year than Taiwan and Hong Kong in 10 or even 20 years

multinational companies combine these low-cost labor (including knowledge-based talents) in China with developed international capital and technology. They not only directly enter China's local market, but also enhance their international competitiveness by setting up production bases in China. Since China allows multinational companies to have complete control over their operations, they are relatively less constrained by China's imperfect financial and de facto legal system (at least for their daily operations). Good oil resistance, solvent resistance and water resistance. In other words, the risk of production in China is smaller than that of direct investment in the financial field

the reason for this is that China's financial system and legal system are not perfect. China's current financial system is powerless to evaluate the risks and benefits of thousands of large and small investment projects, so its efficiency in allocating resources is very low. 20% - 30% of bank deposits cannot find investment exports, and a large part of the remaining deposits can only buy government bonds in the end, while the government has to invest these funds in infrastructure projects to maintain an annual GDP growth rate of 8%. At the same time, although the rule of law system has made great achievements in legislation, there are still great deficiencies in the protection of property rights and the implementation of contracts. These two deficiencies directly affect the stability and efficiency of China's banking system and capital market

Therefore, the development trend of China is determined by the interaction of labor structure and institutional characteristics. China's FDI is mainly in the form of foreign-funded enterprises, of which the proportion of investment in manufacturing is more than 60%. The advantages of labor costs and the defects of the financial system and the legal system determine that foreign capital will enter China in the form of direct production by foreign-funded enterprises rather than financial investment for a long time in the future. An obvious evidence is that on the one hand, China continues to attract FDI, on the other hand, it exports capital to economies with sufficient capital. In the nine years since 1994, China's current account surplus has continued, which obviously means net savings or net capital output

China's rapid development has brought great competitive pressure to other countries in the world, especially Asian neighbors. First, a large amount of FDI flows into China instead; Second, China's export products quickly occupied a large number of global market shares; Third, China's low-cost exports have downward pressure on global prices

to evaluate China's role in the world economy, especially in the Asian regional economy, there are several points that need to be paid attention to. First of all, although China's FDI growth is fast, the level of per capita FDI is still very low. In 2001, China's per capita FDI was $37, far below the world level of $120, and even below the average level of $42 for developing countries outside China

second, there are two main reasons why China's export growth rate is higher than that of its neighbors: 1 Low starting point; 2. Export products include many components imported from other countries, and the value increment of China itself is small. This is largely due to the rapid transfer of production of final goods from other developed Asian economies to China, but high value-added components in the supply chain are still produced in these regions. Two thirds of China's FDI comes from Hong Kong, Macao, Taiwan, Japan, Singapore and South Korea

in fact, the data shows that Asian competitors can grow together with China. From 1990 to 2000, the global share of developed countries in manufacturing decreased by 11 percentage points, while that of Asia increased by 7.3 percentage points, of which China increased by 2.5% There were successful reports of 3 percentage points, lower than 3.1 percentage points of the six ASEAN countries. In addition, other Asian countries also received 1.3 percentage points

therefore, China is not only a regional competitor, but also an important partner of the Asian economy as a global manufacturing base. China not only has an unlimited supply of low-cost labor, but also has a huge market (including consumption, products, manufacturing equipment and components). This is an opportunity for neighbouring countries. Hong Kong and Taiwan first seized this opportunity, followed by the United States, Europe and Japan

third, what China is changing is the global relative price. As China's labor force enters the global market, the price of labor-intensive manufacturing products will certainly decline in the long run, but this will not cause global deflation, because in the consumption structure of developed countries, the total proportion of Chinese products is very small, accounting for only 4.3% of the world's total in 2001. More importantly, because China cannot manufacture some key components of export commodities by itself, it has to import a large amount, which leads to a relative rise in the price of imported commodities and a relative decline in the export value. China has no ability to affect global deflation in the short term

while the price of manufacturing products decreases, the price of raw materials, daily necessities and technology increases, because to support the rapid growth of manufacturing products, the demand for these factors will increase sharply, resulting in the rise of their prices. China has changed from a net exporter of crude oil to a net importer of crude oil; Since the 1990s, China's net imports of daily necessities have tripled; The price of China's top MBA programs has risen sharply, and has been close to Hong Kong and even the United States

objectively speaking, China is undoubtedly a strong competitor in the world economy. The competitive pressure from China will not disappear unless China's surplus labor force is absorbed by the expanding modern industrial sector, thereby raising its price. The key is that China's financial system and legal system continue to improve, implement the protection of property rights, and significantly reduce transaction costs, so as to provide a solid support system for the continuous expansion and profitability of other industrial sectors. This is crucial for sustainable growth. Chinese leaders have been trying to increase farmers' income. This goal has a long way to go. We must focus on the improvement of the entire national economic system, so that farmers can share the benefits of economic growth

in the past 20 years, China has increased 150million non-agricultural jobs and reduced 150million people whose daily income is less than $1 with an average wage of less than $0.50 per hour. However, China still needs at least the same number of jobs in the next 10 to 20 years. Moreover, with the change of population structure, China's attraction to foreign investment is likely to decline, and its financial and legal system must be improved to deal with the aging problem in the future

without industrial upgrading to absorb surplus labor as a prerequisite, China can only share China's labor supply globally

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