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FDI is defined as the direct investment into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

FDI in China: features

The distribution of sources where FDI in China comes from is influenced by the Chinese economy itself and by geographical reasons. Because of the geographic proximity and the little cultural differences, Asian countries and districts such as Hong Kong, Japan, South Korea and Singapore used to account for a large portion of FDI in China. This is not in coordination with the policy the Chinese government promoted to look for multiple sources of FDI. This policy aimed to prevent foreign companies from exerting too much market control on the Chinese market, creating unfair competition and discouraging China’s adoption of foreign advanced technology. Over recent years, Asian countries no longer dominate FDI in China due to China’s improvement in the global work division and global manufacturing industry and the changes brought by Asian financial crisis. Although Asian countries are still the biggest source of FDI in China, the portion it takes had dropped. In 2007, the actual FDI was 83.521 billion dollars, 38.508 billion more than the 45.463 billion in 1998. The portion of FDI owned by Asian countries dropped from 68.92% in 1998 to 55.35% in 2007.

While investments from Asian countries are dropping, investments from European countries, African countries, Australia and the Pacific islands are slowly increasing.

FDI in China: influence

In 1988, Proctor & Gamble set up in Guangzhou(广州) the first joint venture in China-the Guangzhou P&G Co Ltd. It has over ten facilities in Guangzhou(广州), Beijing(北京), Shanghai(上海), Chengdu(成都), Tianjin(天津), and Suzhou(苏州), and the net of its distribution centers cover more than 500 cities in China.

By 2002, over 20 countries in the world partnered with Chinese enterprises to form over 600 joint ventures. Among the world’s top 500 companies, there are 24 who major in producing automobile products and 27 who partly engage in the automobile industry. Every one of these 51 companies have established joint ventures in China. For example, in Shanghai(上海), there are famous brands such as Volkswagen, Robert Bosch, General Motors, Ford, Delphi Automobile, and Japan Toyota Tsusho.

FDI in China: negative effects

Too much FDI in China has also made people worry about China’s independent economic decision-making power and its national security. Also, the imbalance in resource allocation widens the gap between China’s development in different districts and different industries. From an environmental perspective, some foreign countries engage in the industries that greatly influence the environment.Their entry into China could threaten the local ecology. What’s more, with fiercer competition brought by foreign giant brands, it will be hard for China’s small, start-up companies to overcome their disadvantages  in scale and brand recognition.

Daxue Consulting China Market Research

Sources:

• 中国FDI新闻
• FDI
• Reuters

Picture Source: P&G China