Feasibility of Foreign Direct Investment in China

Running head: INTERNATIONAL BUSINESS ACROSS BORDER
International Business across Border
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1INTERNATIONAL BUSINESS ACROSS BORDER
Executive Summary
Foreign Direct Investment refers to investment conducted by an individual or firm of one
country with business interest situated in another country. In developing countries running
with capital shortage FDI plays an important role in supplying capital. It is thus beneficial for
both investors and the investing nation. Before investing in a country, investors need to
analyze the internal environment of the destination country. The paper performs a country
analysis for China to evaluate the investment potential. Political, economic and social factors
are considered to portrait the internal economic environment. Other areas discussed in this
connection include national resource and competitive advantage of China, its foreign
currency reserves, policies of trade and exiting level of foreign investment in the nation.

2INTERNATIONAL BUSINESS ACROSS BORDER
Table of Contents
Introduction................................................................................................................................3
Political, Economic and Socio Cultural and Technological influence in China........................3
Political..................................................................................................................................3
Economic................................................................................................................................4
Social and cultural..................................................................................................................4
Technological.........................................................................................................................4
National Resource and Factor endowment creating comparative advantage.............................5
Foreign currency and exchange influence..................................................................................5
Trade policies in China..............................................................................................................7
Existing level of foreign direct investment................................................................................8
Conclusion and Recommendation..............................................................................................9
Reference list............................................................................................................................11

3INTERNATIONAL BUSINESS ACROSS BORDER
Introduction
Since the economic reform in 1978, China has transformed from a centrally planned
economy to a market-based one. China since the beginning of reform experienced rapid
social and economic development. China has experienced a sustained growth in the past few
years. With rapid expansion of economic growth, more and more people in China are getting
out of poverty. China achieved its Millennium Development Goals by 2015. Although
China’s economic growth has started to decline since 2012, the growth rate is still higher
compared to global standard. Having a population of 1.3 billion, globally China is the second
largest economy (www.worldbank.org 2018). China by holding its leading position plays an
important role in the world economy. Following fast economic growth, China has created
attractive opportunities for investment. Apart from growth, several other factors needs to be
taken into consideration for conducting foreign direct investment. The paper aims to analyze
feasibility of foreign direct investment in the emerging market of China.
Political, Economic and Socio Cultural and Technological influence in China
Political
China is considered as one powerful nation in the world. It holds permanent
membership in the Security Council of United Nations. The founding and ruling political
party of China is Communist party. Despite having a politically stable environment, lack of
freedom on political ground becomes one major area of concern. Analysts often question lack
of political openness of the country. The stable political environment along with cheap labor
and improved infrastructure make China an attractive destination of foreign direct investment
(Guthrie 2012). The foreign direct investment in China recorded to be as high as US$139
billion in 2016 making China the third largest destination of FDI in the world.