Comparing Foreign Investment in China, Post-WTO Accession, with Foreign Investment in the United States, Post-9/11

By Brandt, Jordan | Pacific Rim Law & Policy Journal, March 2007 | Go to article overview

Comparing Foreign Investment in China, Post-WTO Accession, with Foreign Investment in the United States, Post-9/11


Brandt, Jordan, Pacific Rim Law & Policy Journal


Abstract: Ever since China instituted its "open-door policy" (gai ge kai fang) in 1978, the historically autarkic and largely mysterious country has morphed through external interactions with foreign countries and corporations into a hotbed for foreign investment activity. This foreign investment activity has forever changed China's standing in the global community; today, China stands firm and elevated amongst the ranks of the globalized community as one of the leaders in attracting foreign investment.

This article examines China's rise as an economic power through the use of its foreign investment laws. It then compares the experience of China, a communist country with 1.4 billion people, to the United States' capitalistic model roughly one-fifth the size. This article will consider the two countries' distinct histories of foreign investment along with their respective laws and regulations. China has a history of encouraging foreign investment in certain areas while the United States has become increasingly resistant to investment by foreigners in what it considers national security areas. While China's burgeoning economy has benefited substantially from its foreign investment framework, China may attempt to follow the United States' lead and impose further restrictions on where foreigners can and cannot invest in Chinese industries. Ultimately, the reader will be offered a glance into the distinctive features of the foreign investment regulatory framework of each country.

I. INTRODUCTION

Foreign investors exist in different shapes and sizes: two friends from Canada decide to devote their life savings into opening a seafood restaurant and bar in Costa Rica, which had been their lifelong dream; a newly divorced mother of three from the United States invests half her earnings in stock in a foreign oil company; or a major manufacturing company with its operations in the United Kingdom invests in opening up three new factories in various provinces of China. Foreign investment is perhaps one of the most invaluable, sought-after resources a nation could ask for. While the United States traditionally is considered the most attractive country for foreign investment, countries such as China recently have been realizing their potential for attracting foreign investment at an exceedingly rapid pace.

Foreign investment involves "the ownership or control, directly or indirectly, by one foreign person [e.g., individual, branch, partnership, association, government] of 10 per centum or more of the voting securities of an incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise. . . ."2 As used today, investment is defined as "the placing of capital or laying out of money in a way intended to secure income or profit from its employment."3 Every country has unique rules regarding foreign investment, with some regulations more restrictive than others. Regardless of how amenable a country is to foreign investment, each national economy has a specific framework that foreign investors must abide by in order to regulate domestic foreign investment.

The United States holds the title as the world's largest economy;4 however, China is on course to becoming the largest economically attractive country in the world.5 The success of America's liberalized foreign investment regulations has been the result of a system intended to foster a mutually beneficial relationship that assures national security.6 In contrast, China, set to overtake the United States in attracting foreign investment in the next twenty years, officially instituted a regulatory scheme not less than thirty years ago to attract foreign investment.7

America's history of foreign investment dates back to 1606, 170 years before America's founding fathers declared independence from Great Britain. Investments made from 1606 to 1776 were direct investments, with overseas owners assuming full control over their American assets. …

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