China’s Round-Tripped FDI: Trends, Determinants, and Policy Implications*

JIANG Ziye1 and FAN Conglai2

1Doctorate degree candidate of School of Economics, Nanjing University 2Professor and Doctoral Supervisor of School of Economics, Nanjing University

Abstract:

With observations and reflections on a series of phenomena, such as the “independent situation” of China’s FDI during the recent global financial crisis and the increase of round tripped investment after the “tax rate unification, ” this paper examines a unique phenomenon in China’s FDI – round tripped investment. It reveals its determinants from a micro-perspective, and establishes a vector error correction mode (VECM) for empirical testing. The result is that the determinants of China’s round tripped investment are institutional factors such as “achievable differential treatment” and capital control. Tax, exchange rate, housing price and capital control intensity all have an impact on the scale of round tripped FDI. However, judging from the extent of influence, the most important factor should be exchange rate, followed by capital control intensity and housing price, and tax has a limited impact.

Key words:

round-tripped FDI, achievable differential treatment, capital regulation, determinant

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