A comparative study of the impact of international investment agreements on foreign direct investment in both Hong Kong and mainland China

Abstract

Although numerous studies have looked at whether IIAs have had a positive impact on FDI flows to and from OECD countries many of these studies have either inconclusive or conflicting findings. Recently the number of new BITs signed has declined relative to the number of new DTAs. This thesis seeks to demonstrate that these agreements still have a role to play in supporting and attracting FDI in the absence of a Multilateral Agreement on investment. Mainland China and Hong Kong are increasingly important sources and destinations for global FDI yet both have followed very distinct approaches to economic development: Hong Kong is considered the 'World's Freest Economy' and is still seen as a successful exemplar of the Washington Consensus polices. Mainland China’s model of economic development or the Beijing Consensus is now often seen by developing economies as a more viable and attractive alternative. As the pace of economic integration between Hong Kong and mainland China accelerates there has been a corresponding convergence of economic policy. This policy alignment also applies to IIAs: Following Beijing's example Hong Kong is trying to sign as many DTAs as possible with partner economies. The Mainland has adopted a new generation of BITs which include greater protection for investors with terms closer to the Agreements signed by Hong Kong. The closer economic integration between HK and the Mainland may also signal a convergence of the policies espoused by the Washington and Beijing Consensus. BITs are under threat from a new generation of regional FTAs that include a broad range of provisions such as investment promotion and protection. Economies excluded from these Regional agreements could be at a comparative disadvantage to their neighbours. Increased pressure by the OECD for smaller low tax economies to sign Tax Information Exchange Agreements (TIEAs) rather than DTAs could present a threat to HK as a destination and conduit for FDI. After looking at which aspects of the rule of law can be determinants of FDI and the role that IIAs can play, this thesis compared the changes in FDI flows, stock and numbers of foreign companies from countries that shared IIAs with Hong Kong and mainland China with those that do not, over various periods of time. DTAs seem to have had a positive impact on FDI for both the Mainland and Hong Kong however although BITs have worked well for Mainland China there appears to have been little impact on Hong Kong's FDI. In general though IIAs have served both economies well but in different ways and for different reasons Possible policy implication are that both economies should continue to sign bilateral and regional multilateral investment agreements but that in order to attract more strategic business activities the Mainland enhance the protection of investment property rights for both international and domestic investors. CEPA should include investment protection provisions that could support Hong Kong's role as a conduit for FDI to and from the Mainland. Hong Kong should sign DTAs as a priority to reduce the possibility of being black listed as a tax haven and should sign more BITS with developing countries to support the global expansion Mainland companies through the SAR.

Date of Award	16 Feb 2015
Original language	English
Awarding Institution	City University of Hong Kong
Supervisor	Wenwei GUAN (Supervisor)