Trade, FDI, and Economic Growth

This study attempts to derive main factors of China’s economic growth due to external opening-up by comparing Japan’s external economic activities from those of China at the catch-up and grow-up stages, respectively. At the catch-up stage, the main goals of both economies were to earn foreign exchange and achieve the current account surplus. Japan expanded exports to earn foreign exchange but was reluctant to introduce foreign capital. China increased export production by relying on foreign-invested manufacturers and reformed key non-market economic practices. At the grow-up stage, both economies were faced with the challenges to eliminate excessive savings and to deal with external imbalances. Japan had a huge trade surplus with the U.S. and responded to it by self-regulatory measures and increasing local production in the U.S. After Japan’s bubble economy burst, China became the economic challenger to the U.S. Trade and FDI have helped China overcome its disadvantageous initial conditions. By taking advantage of globalization, China has achieved rapid economic growth. While Japan has endeavored to adapt to international economic regimes, China as an economic power has begun to show greater interest in the global governance.