> "China has not been experiencing net inflows of capital?" I'm totally
> down with the argument that China disproves rather than proves the
> Washington Consensus because it broke every rule in the book. But I
> thought this came from harnessing FDI, not excluding it. I could
> swear that China has been one of top destinations for FDI for years. No?
>
> And mind you, Krugman's not talking about the last year in this post,
> he's talking about the last 25 years. And it's not a passing point,
> but one he returned the next day as a kind of gotcha.
>
> What am I missing here?
The key word is "net." China runs a balanced trade account (roughly zero deficit/surplus), which by definition means it runs a balanced capital account (no net inflow/outflow).
There are two types of foreign investment, direct (FDI) and portfolio (cross-border purchases of securities). China takes a big inflow of FDI, but then it extrudes a big outflow of portfolio investment (by buying US debt, for example), yielding a roughly zero net inflow/outflow of capital.
FDI does represent a capital inflow at the macroeconomic level, but for most economists (at least economists of Krugman's persuasion), its real benefit comes at the microeconomic level, from the transfer of technology.
The classic case of a developing country that "relies on foreign capital" in a macroeconomic sense (i.e., that takes in a large net inflow of capital) would be a country that runs a persistent trade deficit, financed by portfolio capital inflows from the developed world. Argentina, for example. Not a good model, obviously.
SA