The Paradox of Declining FDI and the Resilience of China’s Chip Industry

• In Event: FDI and Domestic Politics

Abstract

China’s semiconductor industry has witnessed remarkable growth despite recent shifts in Foreign Direct Investment (FDI) dynamics, where outflows have exceeded inflows for the first time. This trend occurs amidst rising tensions with the U.S. over semiconductor technology and growing concerns over anti-spying activities. How is China’s semiconductor industry continuing to develop rapidly in the face of declining FDI and heightened international tensions? This paper explores the industry’s resilience, focusing on how a strategic FDI realignment, influenced by domestic political factors and government strategies, is driving this growth. The study utilizes a mix of quantitative data on FDI trends, such as the origin, type, and size of investments, and qualitative analyses of policy environments and industry reports. This approach uncovers how China’s semiconductor industry is adapting its FDI strategies to prioritize quality, technological sophistication, and innovation. The research aims to contribute a nuanced perspective to the discourse on FDI’s role in fostering industry-specific technological development under challenging geopolitical circumstances.

Author

• Zhu Zhang, Fairfield University