Before launching the reform and opening-up policy at the end of 1970s, China as a large economy was historically a self-sufficient and inward-oriented country. The People’s Republic of China (PRC) was founded with these legacies in October 1949, and as a socialist country took a cautious stance to participating inthe international division of labor dominated by advanced capitalist countries. One year later, China joined the Korean War in October 1950. As a result, the United Nations imposed an economic embargo upon China, and thus it was practically impossible for China to get into the international economic system. In the 1960s, after China was confronted with the Soviet Union, from which it had received invaluable economic assistance in the previous decade, it suffered a heavy burden of loan repayments to the former alliance partner. These historical experiences led China toward isolation from the outside world and adoption of zili gengshen (self-reliance) policy. Implementing the reform and opening-up policy, therefore, must be an unprecedentedly drastic policy change since the founding of the PRC. In the early 1980s, China’s reform and opening-up policy started with establishing four special economic zones in Guangdong (Shenzhen, Zhuhai and Shantou) and Fujian (Xiamen) to attract FDI. These zones served as an entry point for the acceptance of foreign capital and technology, a base for export processing, and an experimental site for capitalist economic management. Foreign business could enjoy preferential tax treatment while both the central and local governments invested in infrastructure in these zones. In addition to attracting FDI, the Chinese government also sought financing from foreign governments and international financial institutions in the form of official development assistance (ODA) and other loans. In 1984, 14 cities such as Dalian, Tianjin, Shanghai, Guangzhou and other major coastal cities were opened to foreign capital. In the second half of the 1980s, Changjiang or Yangtze River (Shanghai, Jiangsu and Zhejiang), Zhujiang or Pearl River (Guangdong), Minnan (Fujian) Deltas, and Liaodong and Shandong Peninsulas were for the entire region opened to foreign business. In 1992, the upper and middle areas along the Yangtze River, border cities and major inland cities followed suit. China thus reached the final phase of “all-round and multidimensional opening-up” by opening up the whole country to FDI from abroad. China has been successful in attracting foreign capital, and is currently the second largest host country of FDI in the world, absorbing over $100 billion annually since 2010. The FDI accounted for more than 15 percent of total investment in fixed assets in the mid-1990s, and since then has directly contributed to increases in industrial production, employment, tax revenue and foreign trade in China. In general, FDI takes the form of transfer of managerial resources which include knowledge, production technology, management know-how, marketing experience, human skill, intellectual property, market status, informationgathering ability, and research and development (R&D) capacity. FDI has extensively raised the productivity of Chinese industries through the spill-over effects on them. Getting into the twenty-first century, Chinese firms began to invest abroad on a massive scale in response to the government policy of zouchuqu (going-out) in search for new market opportunities, natural resources and strategic assets including key technologies, international brands and sales outlets. In 2013, a236 H. Ohashitotal of 95 Chinese companies were listed in the Fortune Global 500, ranking second after the United States (Renmin Ribao, July 9, 2013). Being typically seen in three major oil companies,2 these Chinese firms have grown into global companies, raising huge amounts of money by listing on the Hong Kong, New York, and London stock markets, and aggressively entering the global markets. Thus FDI both inward and outward has remarkably strengthened the competitive global position of Chinese industries, and led to an unprecedented economic growth in China2.2 Foreign tradeFrom 1978 to 2012, China’s foreign trade increased amazingly by 187-fold. China has also been the world largest exporter and the second largest importer since 2009, while it was ranked in the twenty-ninth in world trade in 1978. China accounted for 11.2 percent and 9.8 percent of the world’s exports and imports respectively in 2012. In the transitional period to the economic opening to the outside world in the early 1980s, a number of Chinese political and academic leaders pointed out the benefits from foreign trade, particularly export, as follows. Foreign trade activities create demands in themselves. Export is regarded as an important source of foreign exchange, which enables China to import capital and intermediate goods essential to economic growth and to get easy access to the advanced technologies embodied in them. Having a wide range of spill-over and demonstration effects, foreign trade leads to productivity gain, technological progress and capital accumulation in Chinese industries at a developing stage. In fact, China has significantly benefited from foreign trade. With the opening-up to the outside world, a number of competitive foreign products entered the domestic market in China, while Chinese firms involved in export were faced with their competitors in the global market. Foreign trade exposed them to severe competition at home as well as abroad. Competitive pressure engaged Chinese firms in developing new products, innovating technology and upgrading industrial structure for survival. Imported capital and intermediate goods with advanced technologies also raised productivity and reduced production costs. Expanding production let the economies of scale work properly, and increasingly raised productivity in Chinese industries. With an increase in export production, China gained a sizable amount of foreign exchange, which enabled it to import more consumer as well as capital and intermediate goods. Needless to say, some Chinese firms were forced to exit the market as a result of losing against the competition. Resource reallocation and productivity have been remarkably improved through such tough competition. In addition, income growth accompanied by an expansion of production diversified Chinese consumers’ behavior to a great extent, and stimulated them to import a variety of foreign products. Foreign trade has accelerated economic growth in China by upgrading not only the production but also the consumption structure.