Foreign Direct Investment (FDI) and China’s Policy Implications

FDI was recognized by Chinese authorities to be one of the important success factors for transformation from the centrally planned economy to the market economy from the very beginning of the transformation process. At the same time, authorities were unwilling to significantly reduce the level of the state control over the economy.

According to Tseng and Zebregs (2002) ‘ideological obstacles’ had to be overcome by authorities, as well as traditional stereotypes that related FDI to imperial colonialism that needed to be avoided. It is a common opinion that due to the fact that these stereotypes have been around for several generations the inflow of FDI into China was increased at a reduced speed compared to its actual potential.

Long (2002) mentions such legislations as Law of the People’s Republic of China upon Foreign Wholly Owned Enterprises, Law of the People’s Republic of China upon Sino-Foreign Joint Ventures, Law of the People’s Republic of China upon Sino-Foreign Cooperative Enterprises, and the Guiding Directory on Industries open to Foreign Investment that have been devised to regulate the activities related to the foreign direct investment in China.

Tseng and Zebregs (2002) claim that rules and regulations imposed by the government regulate investment activities that involve the use of scarce resources, projects that are take place in designated areas, projects that present hazard to environment or national safety, and productions that compete with the state monopoly.

It is also known that rules and regulations were promoted in China that favor liberalization in many aspects, including in economic activities in order for the China to get membership of World Trade Organization (WTO). These rules and regulations include compliance to non-discriminatory treatment of foreign and domestic businesses, compliance to the universal rules on intellectual rights and others. This opinion is supported by Long (2005), who informs that several major Chinese laws were revised within a year of country’s accession to the WTO, and some requirements to FDI were removed.

References

• Long, G, 2002, “China’s Policies on FDI: Review and Evaluation”
• Tseng, W & Zebregs, H, 2002, “Foreign Direct Investment in China: Some Lessons for Other Countries”, IMF Policy Discussion Paper