Location Determinants, Investor Differences and Economic Impacts
Chapter 1: Introduction
Foreign direct investment (FDI) is international investment in the financial or non-financial corporate sectors of the economy in which the nonresident investor purchases 10 per cent or more of the voting power of an incorporated enterprise or has the equivalent ownership in an enterprise operating under another legal structure (IMF, 2004). Allowing FDI into its domestic economy is one of the most dramatic features of China’s move from a planned economy towards a market economy. Since the passing, in late 1979, of the Equity Joint Venture Law which granted legal status to FDI in Chinese territory, China has gradually liberalized its FDI regime, and an institutional framework has been developed to regulate and facilitate such investments. The liberalization of the FDI regime together with the improved investment environment has greatly increased the confidence of foreign investors to invest in China. Consequently, FDI inflows into China increased rapidly after 1979, particularly during the early 1990s and after China’s entry into the World Trade Organization (WTO) in 2001. The total accumulative amount of FDI inflows at 2000 US dollar prices rose from the initial US$0.22 billion in 1979 to reach US$934 billion in 2009, at an annual growth rate of 32.11 per cent.1 As a result, since 1993, China has become the largest FDI recipient in the developing world. Over the course of the past three decades, from 1979 to 2009, FDI became well established in China’s economy, and the activities of multinational enterprises (MNEs) came to assume increasing importance...