China Western Development - Effects - Foreign Investment

Foreign Investment

Since the introduction of economic reform and open-door policy in 1978, the western region has been in a disadvantageous economic position because it promises a less lucrative return to the investors than its eastern competitors. Therefore, one of the major objectives of the Open Up the West initiative was to bring in foreign investment by creating a more stable investing environment through infrastructure construction. This was a success for the western development project at some level, for statistics shows a substantial growth in foreign investment in the western regions, from US $1,837.35 million in 1999 to $1,922.19 million in 2001. However, not all areas in the western region shared in this progress. While foreign direct investment in Chongqing grew US $17.56 million between 1999 and 2001 (from US $238.93 million to $256.49 million), foreign investment in Guizhou, Guangxi and Ningxi declined significantly, dropping about USD $19.71, $250.96 million, and $34.54 million respectively.

The situation in Guizhou reveals a particularly pernicious effect of the Western Development Program. Despite the fact that Guizhou received 53.3 billion yuan in infrastructure construction in 2001 alone, more than the total amount given by the Ninth Five-Year Plan (1995-2002), its foreign capital declined from US $40.9 million in 1999 to $29.29 million in 2001, an astonishing 31% decline, reaching its lowest point since 1997. Contrary to what the state had intended, the West-East Electricity Transfer Project in Guizhou only assured the continued increase in foreign investment on the coast, as most of the electricity generated in Guizhou was transmitted to Guangdong.

Tim Oakes, associate professor of geography at the University of Colorado at Boulder, argues that the decline of foreign investment in certain western regions is a consequence of Beijing’s attempt to recentralize the province’s economy through mega-projects such as Guizhou’s west-east electricity transfer project. The strengthening of central control over the economy has eroded the trust of foreign investors. In the case of Guizhou, while the Chinese central government intended to attract foreign investment in the power sector through the West-East Electricity Transfer Project, only 5% of foreign investment entered the energy sector. About 75% of Guizhou’s foreign investment was channeled into manufacturing and 15% to real estate development. Because the campaign’s economic program is strongly central planned, the campaign has actually discouraged foreign investment, working against its original intent.