Economic Development and Foreign Direct Investment in the People's Republic of China
Thunderbird International Business Review, Vol. 3(1), p. 93-104, 1997
7 Pages Posted: 14 Jul 2017
Date Written: 1997
Since 1979, China has made significant progress in its transition from a state-controlled and dosed economy to a market-oriented system. The "Open Door Policy" invokes a distinctively Chinese version of a market economy which targets economic growth based on foreign trade and foreign direct investment (FDI). The Chinese government encourages FDI to achieve three main objectives. Through FDI new technologies and capital equipment are transferred in as part of the equity shares in joint ventures or wholly foreign-owned enterprises. At the same time, new management techniques and production process are brought in to the less sophisticated Chinese management environment. Lastly, despite the world 's highest savings rate, Chinese banks have structural inefficiencies supplying sufficient amount of money within the existing domestic financial system. Outside cash inflow is essential to sustain the high level of economic activities necessary to accommodate the needs of a 1.2 billion-strong Chinese population.
Furthermore, several Chinese economic circumstances make FDI into its still infant business environment more attractive. The huge business growth opportunities backed by easy access to low labor costs and enormous potential markets are the main structural inducements to draw foreigners' attention. Besides these inherent economic conditions, some tax provisions induce offshore FDI investors to head towards China. Against the backdrop of the world's highest savings rate, al er native ways of financing various economic activities other than relying on Government credits are being sought in attempt to creating market oriented, high-tech based economy.
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