FDI in China: Executive summary: Foreign Direct Investments has achieved a position of key significance across all nations particularly owing to its immense socio-economic benefits. Governments vie for an opportunity to attract FDI in a bid to ensure speedier economic growth, increase employment, and upgrade and improve its technological developments…
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The case of China is often largely cited in literature as one of the successful stories, of FDI investments. This essay on FDI in China aims to discuss various critical issues related to the policies and strategies implemented by the Chinese government to attract foreign funds, the status of labour market in China prior to and post the introduction of FDI, the political framework, the labour market conditions and the availability of infrastructure, etc among others. It also discusses the relationship between labour market conditions and its impact on FDI with the help of various case studies and examples. Contents Sr. # Topic Pg. # 1. Introduction 3 2. Historical origins and background 4 2.1. Trends in FDI in China 5 2.1.1. Current trends 9 2.2. Types of FDI in China 10 2.2.1. Sino-foreign joint ventures 11 2.2.2. Sino-foreign contractual (or co-operative) joint venture 12 2.2.3 Wholly owned foreign enterprise 13 2.3. Stages of FDI in China 14 2.3.1. Experimental stage 14 2.3.2. Growth stage 15 2.3.3. Boom stage 16 2.4. Influence of labour market on FDI 17 3. Key Determinants of FDI in China 18 3.1. Market size and structure 18 3.2. Labour market condition 19 3.3. Availability of Infrastructure 20 3.4. Political framework and introduction of policies 21 4. Examples and Case studies 22 5. Impact and Implications of FDI on the Chinese economy 24 6. Conclusion 25 References 26 1. Introduction Foreign-direct investment in China is by far one of the greatest success stories in terms of attracting international investments across all sectors during the past couple of decades. The People's Republic of China through its revolutionary economic policies managed to attract significant foreign investments surpassing almost all the developing countries in a relatively short period of time. From a humble beginning of 100 foreign-owned firms in the year 1979, China rapidly catapulted to a position of one of the most attractive destinations for foreign investment. By the year 1998 the number grew to as many as 280,000 (See Appendix Table 1) (Facts and details, 2012). A significant reason for the radical increase in inward FDI in the country is attributed to the large scale economic reforms and open-door-policy adopted by it. According to these policies, Special Economic Zones were created in four major cities in China, in the year 1979. The key objective behind this strategic move was to gain experience and expertise of international technologies as well as management skills and boost the country's economy in the process (Wei, 1995). This move was followed by opening up of fourteen other cities to foreign firms in the year 1984 whereby concessions were offered to foreign firms to lure them into investing in the SEZs which included provision of special facilities for funding and infrastructure development (Yeh, 2000). As a consequence of such persistent efforts on the part of the Chinese Government more and more cities were made accessible to the foreign firms, thus successfully reducing unemployment and promoting economic growth. With increased attention from the international investors, and the economic reform policies China managed to attain membership in the WTO thus officially marking its entry in the international club (such as IMF, and World Bank). This further helped the country in garnering more attention from international investors (Howell, 1993). The various key issues related to FDI in China such as
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