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Foreign Direct Investment

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Foreign Direct Investment
Today’s Learning Objectives
• Get familiar with the institutional environment of foreign investment in China
• Analyze the Chinese government’s initiative from “open door policy” to “going out policy”
• Evaluate optional market entry strategies in
China by foreign firms
• Discuss major criteria for entry mode selection

Foreign Direct Investment
(FDI) in China

China Overtakes US as Leading FDI Destination
• In 2012, 44% of global
FDI inflows USD 1.4 trilion were hosted by only five countries.
China took the lion’s share by USD 253 billion
(or 18% of total) followed by the United
States (USD 175 billion),
Brazil (USD 65 billion), the United Kingdom and
France .

• Top 10 countries investing in China

China’s Inward FDI: Current Status
• China will channel its investment into research and development centers, new high‐tech industries, advanced manufacturing, and the energy conservation and environmentally friendly sectors.
• China plans to attract more FDI into central and west regions.

China’s Inward FDI: Current Status
The changing ownership patterns of FDI
• Equity Joint Ventures (EJVs)
• Contractual Joint Ventures
(CJVs)
• Wholly Foreign‐Owned
Enterprises (WFOEs)
• FDI Share‐holding Ventures

China’s Inward FDI:
Impact on Chinese Economy
• Strengthen industrial base and increased the domestic value added
• Transfer modern technology for industry upgrading • Promote China’s foreign trade
• Promote regional development, create jobs and increase fiscal revenue
• Strengthen market reform and mechanism

China’s Inward FDI:
Impact on Chinese Economy
FDI’s impact on advancing China’s technological capabilities
• Filling in the technology gaps
• Introducing advanced technology
• Improving existing technology

FDI’s impact on China’s technology

FDI’s impact on China’s technology
• R&D centers set up by foreign MNCs
– The number of MNCs’ R&D centers exceeds 1000
–
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