FDI In China Case Study

The distribution of FDI on per sector basis has changed significantly. For example, FDI was invested into the construction of apartments and hotels in the service and tourism industry. In order to encourage investors to put their money into the manufacturing enterprises meant for export as well as technically advanced enterprises, the government gave out an issue paper titled “The Provision of the State Council of the People’s Republic of China for the Encouragement of Foreign Investment”. In addition, the government also promoted FDI into the vast agricultural sector as well as other related sectors. The government also opened up services industries such as insurance, domestic retail, and banking. Currently, FDI in the manufacturing sector

This chapter will examine the key characteristics of FDI in china; it will evaluate the source of FDI by countries or regions in China, FDI distribution by sector, and the geographical allocation of FDI in China. Following the adoption of the open economic policy reforms, in the late 1970s, FDI has experienced a surge from almost zero to US $ 40-45 billion annually inn 1990s. This is attributable to Deng Xiaoping’s reaffirmation of the continued government support of the open economic policy. This occurred when he personally paid a visit to the coastal areas in the south which led to an aura of confidence and entrepreneurship spirit among the foreign and domestic investors. FDI inflows continued to increase but there was a small decline following the Asian financial crisis it was back on the increasing radar in 2000 due to China’s WTO accession in part. During the reform period, GDP rose by a whopping 5% and by the 1990s, China had positioned itself as the second largest FDI recipient after the USA. Moreover, among the developing countries, China ranks first as a major FDI recipient and it was responsible for between 25% and 30% of FDI flows to the developing

However, following the entrance of multinationals from Japan, USA and Europe, the above two economies diminished in importance in the 1990s. Nevertheless, they carry almost half of the total China FDI.

According to United Nations (1992,1993) , Global FDI in nominal terms doubled in 1975 and 1985 and quadrupled between the years 1980 and 1990. In 1989 alone it achieved a high of $200 billion which was the biggest ever at that time. This figure dramatically rose to about $234 billion in 1990. Percentage of FDI distribution in China with respect to major source countries during 1991-20014 are summarized in the below table 2. Hong Kong was the largest contributor of FDI to China. Out of the $4.4 billion in total FDI in 1991, Hong Kong had contributed 55% of the sum amounting to $2.4 billion. In general, Hong Kong’s contribution to the total FDI has always surpassed the 50% mark (MOFTEC, 2001). As can be seen from the table, Hong Kong take always the largest percentage from 1991 to 2014. However, it is worth noting that such foreign investments from Hong Kong are in conjunction with investment from Taiwan. This has always remained the case in a bid to avert political inconvenience between the two countries. Additionally, a small portion of the investment is Chinese capital from mainland China. This capital