Foreign direct investment in China: Policy, recent trend and impact

Abstract

One of the most important elements of China's economic reform has been the promotion of foreign direct investment (FDI) inflow. Government polices on FDI have gone through different stages in their main objectives since the late-1970s, from gradually opening to foreign investors, to actively encouraging inward investment, directing FDI in accordance with domestic industrial restructuring, and complying with China's World Trade Organization (WTO) obligations. FDI in China has experienced rapid growth especially since the mid-1990s, as well as structural change. Most of the earlier investments were small scale, labor-intensive and exportoriented. In recent years, more investment has been large scale and more capital and technology intensive, aiming at both domestic and export markets. Moreover, increasingly more investment has come from the industrial world, and has located along the eastern coastal regions, in additional to the two southeastern provinces. FDI has played a crucial role in China's rapid growth, economic transition, and, mostly importantly, integration with the world. China's recent accession to the WTO provides more incentives to foreign investors. At the same time, it will also result in more intense competition for domestic firms.