FDI In China

China largely depends on continuous foreign direct investment and policy-making to facilitate inward investment. This foreign investment and development of industrial sectors is vital for establishing the infrastructure of a modern market economy. (Panayides Song, & Nielsen, 2002).It has been one of the most successful countries that have managed to attract foreign investment since the early 1990s. (De Beule, & Van Den Bulcke, 2005). China ranked first in the list of favoured locations for future investment abroad. Almost 60 per cent of the surveyed companies placed China at the top of the most attractive economies for the location of FDI, ahead of the US and the three other BRIC countries, i.e. India, Brazil and the Russian Federation (Child

The level of development in developing countries is often considered as one of the most important bases of FDI flows as it is positively related to domestic entrepreneurship, education level, and local infrastructure (Gergely, 2003). China has rich resources of labour, with average salaries of workers remaining at a fairly low level. China has paid great invested in the education of its people such as nine-year universal compulsory education making Chinese labourers are of relatively high skills and quality (Ali & Guo 2005) .This is an advantage to Caterpillar (CAT) as it will cut on labour costs since the cost of labour is cheaper. In addition to the above Caterpillar is able to employ skilled and qualified workers thereby increasing efficiency and quality of output. Furthermore these low labour costs have made China gain comparative advantage in a number of labour intensive manufacturing products which include leather and shoes. .Low-labour-cost advantage of China may not be very helpful as China now faces competition from neighbouring countries such as Vietnam and India, which are also able to provide cheap labour. However its major weaknesses lie in the production of capital and technology intensive goods like machinery and engines. China is also very rich in energy reserve. Chinese production of oil is among the highest in the world after Saudi Arabi (Zhao, 2013).This is beneficial to Caterpillar as it will provide the necessary equipment to extract the oil since there is high demand in China. Furthermore size and growth of the Chinese economy has also encouraged increase in foreign direct investment in China ( Dees, 1998 ) .China has a population of 1.2 billion, Over the past years China's economic reform has been rapidly increasing, with purchasing power of the people strengthening and