Fdi china

FDI IN CHINA

I.- Introduction

II. - FDI Liberalization
First phase
Second phase
Third phase
Fourth phase
Fifth phase

III. - The FDI Phenomenon in China
FDI size
The financial roles of FDI
Investors Origins
Prevalence of small foreign investors
Industry distribution
Economic weight of FIEs

IV. - The WTO, FDI, and Economic Reforms
External and internal reformsV. - Key issues

VI. - Recommendations

VII. - Conclusions

VIII. - Bibliography

I.- Introduction

China is the largest recipient of foreign direct investment (FDI) among developing countries. The policy and institutional factors include import substitution, excess investment demand and features of China's FDI regulatory system. This essay shows that there are costs associatedwith such a high demand for FDI, including overbidding for FDI and the associated loss of Chinese bargaining power, large import demand, and the structure of the FDI at variance with Chinese official policies. This essay also talks about the foreign economic policy implications of China's FDI absorption.

II. - FDI Liberalization

First phase: 1979-1985, Government began to permit inwardFDI. Equity Joint Venture made the commitment not to nationalize or expropriate the assets of foreign investors with out “ due case and compensation”, this law imposed no equity ceilings on foreign investors, but equity floor by contributing with 25% of the equity to a joint venture. Also this law imposed that the chairman on board of directors FIEs be a Chinese citizen regardless of the distributionof the shares of the equity contributors.[1]

Second phase: 1986-1991, The Wholly Foreign-Owned Enterprise Law and the Sino-Foreign Cooperative Joint Venture Law, developed a legal infrastructure governing the 3main forms of Foreign –Invested Enterprises (FIEs): equity joint ventures, cooperative joint ventures, and wholly foreign-owned subsidiaries.
Authorities shifted from a policy stancepermissive toward FDI to one that cautiously and selectively promoted FDI. The effect of this regulations and policies offset the inherent biases against foreign firms operating in a partially reformed centrally planned economy; neutralize some of the anti-export biases in a still substantially closed economy.
Regulations separated FIEs into two kinds: favorable policy and regulatory treatments,and normal policy and regulatory treatments.

Third phase: 1992-1994, Deng Xiaoping push for substantial trade and investment liberalization. Local authorities had newly-granted power, set up numerous economic development zones. The barriers against FDI were reduced across-the-board.
In 1980s most sectors were protected, the authority began to permit joint ventures, but still foreignownership was restricted 50 %of the equity stake and imports were limited 30 % of retail sales. Joint ventures in transportation, port development, oil exploration, and financial services were permitted, though still with significant limitations.[2]

Fourth phase: 1995-1998, China felt that it was in a position to pick and choose feign investors, and focus on increasing the quality rather than simplythe quantity of FDI inflows. They emphasize in “national treatment” of FIEs. They implemented policies that removed the tariff exemption on FIEs’ imports of equipment and raw materials. The new policy did not affect FIEs or those with capitalization value of over US $ 30 million, also renewed the across-the-board tariff exemption treatment of FIEs. A tariff exemption was granted to FIEs in thoseproduct segments promoted by the government. Tax and other incentives also were granted to those foreign firms deemed to be willing to transfer advanced technology, and high-tech sectors. Another policy was crated to unify corporate income tax rates.[3]

Fifth phase: 1998-2003,China and US concluded negotiations, this negotiations included investment and trade liberalization. China was obliged...