Home Contact Us  
   

India & the World - Articles

Print Bookmark Email Facebook Subscribe
#3767, 29 November 2012
 
China: Reasons for being a Top FDI Destination
Teshu Singh
Research Officer, CRP, IPS
email: teshusinghdu@gmail.com
 

Within three decades of reform and opening up China has become a top destination of Foreign Direct Investment (FDI). The United Nation Conference of Trade and Development released a report on 23 October 2012, stating that China replaced the US as the world’s top destination for FDI by attracting US$59.1 billion in the first six months of 2012. Meanwhile, FDI flowing to the US was US$ 57.4, witnessing a decline of 39.2 per cent as compared to the last year.

Why is China the top destination for investments despite all doomsday stories? What has the government done to make China attractive? Is this a new phenomenon?

Reasons for China being the top destination
Zhang Xiaoji, Director of the Foreign Economic Relations Development, said that China’s biggest attraction to global investment is its huge market and low cost production. The 12th Five Year Plan (2011-2015) has emphasized on consumption-driven growth. In order to increase the consumption, the government has planned to increase the household disposable income, most likely through raised minimum wages and increased social safety nets, such as health care and social welfare payments. China’s economy is undergoing a fundamental shift where domestic consumption is the key driver. Huge domestic market attracts FDI seeking to produce standardized goods. The most preferred sectors are the service sector followed by the real estate and the manufacturing sector (new sectors of China’s economy are opening up for foreign investors).

In comparison to the US and the European Union economies that are suffering from medium and long term troubles, the Chinese economy has withstood the litmus test. In 2009, when global trade contracted by 12.2 per cent both Germany and Japan experienced deeper recessions than the US.  Conversely, China was able to avoid recession through fiscal and monetary incentive that succeeded in increasing domestic demand. China is well connected to its global liner shipping network and has topped the UNCTAD statistics on liner shipping connectivity index (LSCI). Thus it is noteworthy, as at a time when global FDI is squeezing due to European debt crisis and looming US sub-prime crisis, China is proving the most attractive place for investment.

Role of the Government

Establishment of Special Economic Zones (SEZ) has played a major role in drawing FDI into China. In 1978, FDI’s were permitted only in SEZs along the coastal areas. During 1980-1990 the Chinese government authorised municipalities to establish SEZ’s based on their geographical location, industrial condition and human capital. There were 222 state-level economic zones and 1346-muncipal level economic zones by 1994 and China began to see consistent, sizable investment across provinces.
 
Accession to WTO in 2001 broadened China’s “opening up” policies and led to continued FDI flow towards the economy. Today, China is a major importer of raw materials, manufacturer of basic goods, and exporter of consumer goods. The Chinese government itself plays a significant role in economy in general and FDI’s in particular. The government gives huge tax deductions to the companies when they enter domestic market. They encourage MNCs to enter the domestic market with advanced technologies and this way the country’s economy gains access to newer technology more quickly. The Chinese Government has worked extensively to better the investment environment, which has a huge appeal to the world. According to UNCTAD, “China is experiencing structural adjustments in their FDI flows, including the relocation of labour intensive and low end market- oriented FDI to neighbouring countries”.

Is it a bubble or a new Phenomenon?

This is not the first time that China has been the largest recipient of FDI; it also claimed top spot in 2003 (soon after accession to WTO). Nor the last time, as other countries could claim that distinction, as initial indicators show that FDI flows to the US might be stronger in the second half of 2012. Vice Premier Li Keqiang has proposed to cut taxes, this would spark more foreign investment in the country.

However, there is an apprehension that China may get entangled into the “middle-income trap”. The Managing director of J.P. Morgan has expressed faith in Chinese economy stating that given its still rapidly growing productivity China can avoid this. Despite this factor, China will be the most preferred FDI destination for the simple reason that it is more politically stable and, its macro economy is relatively stable as has been evident during the global financial crisis. The Purchasing Market Index that rose to 49.1 in October-highest in three months makes the economy all the more optimistic. There are no indications that the new leadership will change the “reform and opening up policy”. Thus, FDI attraction will remain an important element of China’s state policy of economic openness and liberalisation.

Print Bookmark Email Facebook Subscribe
IPCS Columnists
Af-Pak Diary
D Suba Chandran
Resetting Kabul-Islamabad Relations: Three Key Issues
Can Pakistan Reset its Relations with Afghanistan?
The New Afghanistan: Four Major Challenges for President Ghani
Big Picture
Prof Varun Sahni
Understanding Democracy and Diversity in J&K
When Xi Met Modi: Juxtaposing China and India
Pakistan?s Tactical Nuclear Weapons: The Inevitability of Instability

Dateline Colombo

Asanga Abeyagoonasekera.
Sri Lanka: Moving Towards a Higher Collective Outcome
The Importance of Electing the Best to our Nation's Parliament
Sri Lanka: Toward a Diaspora Re-Engagement Plan
Dateline Islamabad
Salma Malik
Pakistan's Hurt Locker: What Next?
IPCS Forecast: Pakistan in 2015
India-Pakistan Relations in 2015: Through a Looking Glass
 
Dhaka Discourse
Prof Delwar Hossain
IPCS Forecast: Bangladesh in 2015
18th SAARC Summit: A Perspective from Bangladesh
Bangladesh in Global Forums: Diplomacy vs. Domestic Politics
Eagle Eye
Prof Chintamani Mahapatra
India-US: Significance of the Second Modi-Obama Meet
Has President Obama Turned Lame Duck?
Modi-Obama Summit: Criticism for Criticism?s Sake?

East Asia Compass
Dr Sandip Mishra
India-Japan-US Trilateral: India?s Policy for the Indo-Pacific
China-South Korea Ties: Implications for the US Pivot to Asia
Many ?Pivots to Asia?: What Does It Mean For Regional Stability?
Himalayan Frontier
Pramod Jaiswal
Nepal?s New Constitution: Instrument towards Peace or Catalyst to Conflict?
IPCS Forecast: Nepal in 2015
Constitution-making: Will Nepal Miss its Second Deadline?

Indo-Pacific
Prof Shankari Sundararaman
IPCS Forecast: Southeast Asia in 2015
Indonesia's Pacific Identity: What Jakarta Must Do in West Papua
Modi in Myanmar: From ?Look East? to ?Act East?
Indus-tan
Sushant Sareen
IPCS Forecast: Pakistan in 2015
Islamic State: Prospects in Pakistan
Pakistan: The Futility of Internationalising Kashmir

Looking East
Wasbir Hussain
Myanmar in New Delhi's Naga Riddle
China: ?Peaceful? Display of Military Might
Naga Peace Accord: Need to Reserve Euphoria
Maritime Matters
Vijay Sakhuja
Indian Ocean: Modi on a Maritime Pilgrimage
Indian Ocean: Exploring Maritime Domain Awareness
IPCS Forecast: The Indian Ocean in 2015

Nuke Street
Amb Sheelkant Sharma
US-Russia and Global Nuclear Security: Under a Frosty Spell?
India's Nuclear Capable Cruise Missile: The Nirbhay Test
India-Australia Nuclear Agreement: Bespeaking of a New Age
Red Affairs
Bibhu Prasad
Countering Left Wing Extremism: Failures within Successes
Return of the Native: CPI-Maoist in Kerala
The Rising Civilian Costs of the State-Vs-Extremists Conflict

Regional Economy
Amita Batra
India and the APEC
IPCS Forecast: South Asian Regional Integration
South Asia: Rupee Regionalisation and Intra-regional Trade Enhancement
South Asian Dialectic
PR Chari
Resuming the Indo-Pak Dialogue: Evolving a New Focus
Defence Management in India: An Agenda for Parrikar
Pakistani Taliban and Al Qaeda in Afghanistan: Implications for Asian Security

Spotlight West Asia
Amb Ranjit Gupta
Prime Minister Modi Finally Begins His Interaction with West Asia*
A Potential Indian Role in West Asia?
US-GCC Summit: More Hype than Substance
Strategic Space
Manpreet Sethi
India-Russia Nuclear Vision Statement: See that it Delivers
Global Nuclear Disarmament: The Humanitarian Consequences Route
Nasr: Dangers of Pakistan's Short Range Ballistic Missile

The Strategist
Vice Admiral Vijay Shankar
Jihadi Aggression and Nuclear Deterrence
The Blight of Ambiguity
Falun Gong: The Fear Within


OTHER REGULAR contributors
Gurmeet Kanwal
Harun ur Rashid
N Manoharan
Wasbir Hussain
Rana Banerji
N Manoharan

Ruhee Neog
Teshu Singh
Aparupa Bhattacherjee
Roomana Hukil
Aparupa Bhattacherjee


 

Browse by Publications

Commentaries 
Issue Briefs 
Special Reports 
Research Papers 
Seminar Reports 
Conference Reports 

Browse by Region/Countries

East Asia 
South Asia 
Southeast Asia 
US & South Asia 
China 
Myanmar 
Afghanistan 
Iran 
Pakistan 
India 
J&K  

Browse by Issues

India & the world  
Indo-Pak 
Military 
Terrorism 
Naxalite Violence 
Nuclear 
Suicide Terrorism 
Peace & Conflict Database 
Article by same Author
A 'New Era' of Democracy in Taiwan: Implications for Regional Security & Economy

IPCS Forecast: China in 2015

Securing India's Interests in the Indian Ocean: New Strategies and Approaches

China and the Asian Infrastructure Investment Bank: A New Regional Order?

China's End Game in Hong Kong

Contemporary Foreign Policy of China: Legacy of Deng Xiaoping

BRICS: China’s End-Game

US-China Strategic and Economic Dialogue: Lessons for India

The Malabar Exercises: India, Japan and the US

China 2013: New Leadership

China and Air Defence Identification Zone (ADIZ): Political Objectives and International Responses

The Positives

China and Southeast Asia: What is the Strategy behind the Maritime Silk Road?

China and Myanmar: The Great Game of the Gas Pipeline

China and the US: Fifth Strategic and Economic Dialogue

Xi-Obama Summit

Quest for Energy Security

India and China: What did the Salman Khurshid and Li Keqiang Visits Achieve?

China: Engaging Nepal as a Land Port

China: Contextualising the Anti-Access Area-Denial Strategy

China and the Asia-Pacific: Trends, Challenges and Dilemmas

Second Sino- Indian Strategic Economic Dialogue: A SWOT Analysis

IPCS Discussion: Sino-Indian and Sino-South Korean Relations

IPCS Discussion: China's Role in North Korea's Stability and Regional Security

Yang Yechi in Southeast Asia: A fruitful Visit?

ADD TO:
Blink
Del.icio.us
Digg
Furl
Google
Simpy
Spurl
Y! MyWeb
Facebook
 
Print Bookmark Email Facebook Subscribe
Year 2017
 January  February  March  April  May  June  July  August  September  October  November  December
 2016  2015  2014  2013  2012  2011  2010  2009
 2008  2007  2006  2005  2004  2003  2002  2001
 2000  1999  1998  1997
 
 

The Institute of Peace and Conflict Studies (IPCS) is the premier South Asian think tank which conducts independent research on and provides an in depth analysis of conventional and non-conventional issues related to national and South Asian security including nuclear issues, disarmament, non-proliferation, weapons of mass destruction, the war on terrorism, counter terrorism , strategies security sector reforms, and armed conflict and peace processes in the region.

For those in South Asia and elsewhere, the IPCS website provides a comprehensive analysis of the happenings within India with a special focus on Jammu and Kashmir and Naxalite Violence. Our research promotes greater understanding of India's foreign policy especially India-China relations, India's relations with SAARC countries and South East Asia.

Through close interaction with leading strategic thinkers, former members of the Indian Administrative Service, the Foreign Service and the three wings of the Armed Forces - the Indian Army, Indian Navy, and Indian Air Force, - the academic community as well as the media, the IPCS has contributed considerably to the strategic discourse in India.

 
Subscribe to Newswire | Site Map
18, Link Road, Jungpura Extension, New Delhi 110014, INDIA.

Tel: 91-11-4100-1902    Email: officemail@ipcs.org

© Copyright 2017, Institute of Peace and Conflict Studies.