Question

Please read "Country Focus: Foreign Direct Investment in China" (on page 223 in the 8th edition). In the late 1970s, China opened its doors to foreign investors. By the mid 2000s, China attracted $65-70 billion of FDI annually. China’s large population is a magnet for many companies and because high tariffs make it difficult to export to the Chinese market, firms frequently turn to foreign direct investment. However, many companies have found it difficult to conduct business in China, and in recent years investment rates have slowed. In response, the Chinese government, hoping to continue to attract foreign companies has established a number of incentives for would-be investors.

1. Consider the challenges involved with investing in China. How does China’s political position and economic situation affect its ability to attract foreign direct investment?

2. Discuss China’s efforts to encourage investment in its underdeveloped areas. What effect will investment have on these areas? How can firms prepare for the unique challenges of operating in these areas?

Answer 1

Answer 1;

The government in China is less of democratic type and more of dictatorship type of the government. Thus,all the political decisions in the country of China are taken keeping the interests of the government in mind and interests of the market are set aside and this will affect the FDI inflow in the country by reducing the inflow of capital in the country.

Economically, the country is an emerging country with high economic growth rate. But restrictions on the currency free movements and high tariff on imports make it challenging for the investors to invest in China.