However, female migrant workers who contributed to the growth through participation in the foreign-owned manufacturing sector had to work in poor conditions, with insufficient labor protection, and under restricted migration opportunities due to the hukou system.
Foreign direct investment basically did not exist, except for a very small number of foreign-owned companies which continued operation in China, like the Royal Dutch Shell.
[3] After assuming power in 1978, Deng Xiaoping prioritized the policy of attracting foreign investment, giving the term self-reliance a new meaning.
The resolution states that in 1979, the central leaders adopted new policies to “correct the shortcomings and mistakes of the previous two years in our economic work and eliminate the influence of ‘Left’ errors that had persisted in this field.” To improve the people’s livelihood, the leaders believed that “active efforts must be made to promote economic and technical co-operation with other countries on the basis of independence and self-reliance.”[5] While the 1981 resolution was widely considered as Deng's signifying the coming of the reform and opening up, political historians Frederick C. Teiwes and Warren Sun argue that Hua Guofeng, generally seen as a loyal follower of Mao Zedong, had already advocated some of the policies that Deng was to implement in the 1980s.
[8] Soon after Mao's death, central leaders were generally committed to production-oriented policies and open to importing foreign technology for that purpose.
Before Deng assumed power, the reinterpretation of self-reliance and the policy to attract foreign investment and technology were already in place.
[4]: 151 Initiatives from central leadership were crucial in encouraging local officials and elites to engage with foreign direct investment.
In a study on the foreign direct investment in Suzhou, political scientist David Zweig challenges the neoliberal model that suggests “foreign trade, with its diverse impact on industrial sectors, generates collective action among domestic coalitions who lobby for policy outcomes supporting their collective interests.”[11] Zweig, however, does not find the elite in rural coastal China lobbying for more trade in a time when their own comparative advantage in foreign trade increased.
What he found instead was the effects of state initiatives from central level in the penetration of foreign direct investment into rural China.
He identifies two reasons for the phenomenon: 1) the farmers and managers of township and village enterprises either had to pay too high a cost to lobby for their interests or had no formal channel to influence policy-making; and 2) they lack the incentives to engage in foreign trade because of state monopoly over external interactions and the use of foreign exchange.
[12] As seen from the above table, the initial increase in foreign direct investment was slow after Chinese government passed several laws in the late 1970s and early 1980s.
Political scientist David Zweig argues that significant increases did not come until the changes in national policies in 1984 when the central leaders mobilized state organs to incentivize economic opening-up.
[12] There was a steady rise in foreign direct investment in China in the second half of the 1980s until the 1989 Tiananmen Square protests and massacre, which briefly disrupted the growing trend.
For the trend in the 1990s, economist Nicholas R. Lardy summarizes four reasons for the continuous growth in foreign direct investment: 1) globally, the increase in the magnitude of foreign direct investment flowing to developing countries; 2) the political stability after the 1989 Tiananmen Square protests and massacre and China's domestic economic growth; 3) China's more liberalized policy in attracting foreign investment; and 4) what he calls “the phenomena of recycled capital of Chinese origin,” meaning that to exploit the advantages of the preferential foreign direct investment treatments, Chinese companies relocated their capital to outside of China and reinvested back to China.
[14] Economist Barry Naughton identifies two other reasons for the surge after 1992: 1) the institutional foundations and preferential foreign direct investment policies that the party had been building and providing in the previous decade; and 2) a further opening of the sectors that foreign companies could participate, from mainly export manufacturing before 1992, to domestic marketplace like real estate afterwards.
In 1992, Chinese leaders furthered the process by setting up special economic zones in Pudong area in Shanghai and two dozen more in inner cities.
Naughton notes that as investment from Korea and Japan focused on northeastern part of China, it may have had a stimulating effect on the otherwise declining economy in the region.
Their efforts paved the way for further challenging investment into China and convincing Chinese officials to adopt export-oriented policies in the 1980s.
One consequence of this rush for foreign investment is the abuse of labor protections in the special economic zones in China.
Most Hong Kong- or Taiwan-owned factories sub-contracted to make shoes, clothes, electronic appliances, or toys for American, European, or Japanese companies, and provided work opportunities to those migrants, mostly young women.
At Zhili, the management practiced the illegal “three-in-one” arrangement with the production floor, storage space and workers’ dormitory all in one place.
For the case of Zhili, the representatives of the Italian toy company initially agreed to compensate the victims, but eventually claimed that they had invested the money in school and the production of artificial limbs.
[29]: 49 Chinese foreign direct investment in southeast Asia is primarily in sectors like mining, energy, industrial parks, and infrastructure.
[29]: 80 The National Development and Reform Commission monitors the outbound foreign direct investment of Chinese businesses.