Foreign Direct Investment in China

By Phillip Donald Grub; Jian Hai Lin | Go to book overview

4
Motivations and Modes of Investment

Foreign investment involves a great variety of political, economic, commercial, and cultural complexities of host countries, in addition to the internal strengths, resources, and constraints of each individual investing firm. Entering into a foreign investment arrangement, such as a joint venture in a nonmarket economy like China, presents additional problems and uncertainties. These arise because the Chinese investing partner of a proposed joint venture is ultimately the State, whose motives and purposes in embarking upon the venture may differ vastly from those of a foreign investor. Also, the Chinese have had little historical experience in conducting collaborative projects with foreign firms. More importantly, under a centrally planned environment, rigid political and economic systems, together with different management practices, may pose potential difficulties for a "marriage" between a Western private market-oriented enterprise and a state-owned and operated organization.

Why have so many foreign firms invested in China, with still many planning to do so, despite the recent political and economic uncertainties caused by the events of June 1989? To understand this development, one must first consider the motivations of both the Chinese and foreign investors.


INVESTMENT MOTIVATIONS

Chinese Motivations

The promotion of foreign investment by the Chinese government is motivated by a variety of factors that include the following:

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