FDI Policy and Chinese Government

Subject: Economics
Pages: 2
Words: 356
Reading time:
2 min

China continues to maintain its lead in regard to FDI inflows in attracting the highest investments amongst all the developing countries. The economy continues to grow at 9% and the implementation of the requirements of the World Trade Organization fuelled the interest of investors as China continued with its policies of liberalization and deregulation in telecommunications, insurance, banking, and retail and wholesale segments. Policy measures that increased foreign ownership and eliminated geographic restrictions had galvanized the confidence in FDI.

China still continues to maintain the top position for FDI inflows, but the profit cycles are now observed to have started to decline. It was for the first time in several years that in 2005, many US foreign affiliates in China began seeing their earnings decline by about 9% per year. A strong weakness with the Chinese system has surfaced by way of inadequate labor skills and weak enforcement of intellectual and property rights. China is characterized as having the highest rate of software piracy in the world. China does not have high standards of English language amongst its people which is responsible for the lack of strong managerial talent within the country.

Hence recruiting high-quality staff from overseas is proving to be a big burden on the resources of companies. With the competition from India which has a large English-speaking population, some companies have started to prefer India as a better destination for their investments. Given that China is still influenced by Marxist thought, dependency stances often treat FDI by foreign corporations (MNCs) as a mechanism that exploits developing countries in gaining control by western industrialized nations.

Having experienced rapid economic advancement, the Chinese authorities have begun to reduce the speed with which western companies are now encouraged into entering the country. More and more Chinese companies have now started to reach high standards that almost match the expertise of their western counterparts. Given the present economic downturn, there will be a natural check on foreign entrants as well as a greater extent of self-dependency on the part of the Chinese economy.