A new study from The Australian National University shows that foreign direct investment (FDI) both into and out of China is improving economic stability and driving development in Asia and the Pacific.

In a major study, Dr Chunlai Chen from the ANU Crawford School examined levels of FDI in 49 developing countries between 1992 and 2008. Dr Chen said that increases to FDI flows into China over the last 30 years have created a win-win situation for other countries in the region - including Australia.

"The huge amount of FDI inflows into China in the last three decades has been a cause of celebration for some and of concern for others. There are increasing concerns that China's FDI success has been excessive and crowded out FDI into other developing countries," said Dr Chen.

"However, my study found that FDI inflows into China have a significantly positive effect on FDI inflows into other developing countries.

"This positive and complementary effect of FDI inflows into China on FDI inflows into other developing countries, and especially into Asian developing economies, may be linked to the increased resource demands of a growing China and the deepened integration of production networking between China and other Asian economies.

"A growing China can add to other countries' FDI inflows by creating more opportunities for production networking and by raising the demand for raw materials and resources. For example, increased FDI in China will lead to increased demand for Australian resources.

"On top of this China has also increased its outward FDI in the Asia-Pacific, with 80 per cent currently being invested in countries throughout the region, including Australia. This shows that rather than a pattern of investment diversion we are seeing investment creation. FDI both into China and from China to other countries has a largely positive effect and should not raise fears about the rise of China or its domination of the region."

Dr Chen added that the positive impacts of Chinese FDI would be felt for at least the next 20 years.

"Increased levels of FDI have expanded markets in both Asia and China and will help create other markets for resource production to cater for China's rapid economic growth. This trend is likely to not only continue but accelerate over the next 20 years," he said.

"In the next two decades, China's economic growth and strong investment expansion will energise Asia-Pacific economies and other countries, as well as help create an expanded and an increasingly diversified and integrated Asia-Pacific market."

Dr Chen's study forms part of his latest book Foreign Direct Investment in China which provides a thorough and wide-ranging overview on the evolution of China's FDI policies over the last 30 years. The book is available through Edward Elgar Publishing.

For media assistance: James Giggacher, ANU Media - 02 6125 7988 or 0416 249 241

Source: The Australian National University http://news.anu.edu.au/?p=13461