Foreign Direct Investment in China Beginning in the late 1978, China\'s leadersh
ID: 1119967 • Letter: F
Question
Foreign Direct Investment in China Beginning in the late 1978, China's leadership decided to move the economy awe from centrally planned socialist syster the one that was more market drien, he been 40 years of sustained high economic growth rates of around s .10%, cormpounded growth attracted substantial foreign investment. Starting from a tiny base, investment increased to an annual average rate of $2.7 billion between 1985 and foreign 1990 and then surged to $40billion annually in the 1990s, naking China the second lgeest redpient of FDl inflows in the world after the United States. The growth has continued, with inward investments into China hitting a record $128 billion in 2014 (with another $103 billion going into Hong Kong). Over the past 20 years, this inflow has resulted in the- establishment of more than 300,000 foreign-funded enterprises in China. The total stock FD Tn Mainland China grew from almost nothing in 1978 to $1.1 trillion in 2014 (another $1.5 trillion of FDI stock was in Hong Kong). The reasons for this investment are fairly obvious. With a population of more than 1.3 billion people, China represents the world's largest market. Historically, import tariffs mpde it difficult t o serve this market via exports, so IFD was required id a company wanted to tap. -into the.country's huge potential. China joined the world Trade Organization in 2001. As a result, nerantariff rates on imports have fallen from 15.4 % to about 8% today, and reducing the tariff became a motiveTorinvestment in China (although at 8%, tariffs are stil above the average of 3:5 %ound in many developed nations) Notwithstanding tariff rates, many firms belleve that doing business in China requires a substantial aresence in the country to build GUANXI, the cru 1 relationship networkFurthermore a combination of relatively inexpensive labour and-ax incentives..particularly for enterprises that establish themselves in special economic zones, make s China an attractive base from which to serve Asian or world markets with exports (although rising labour cost in China are now making this less important). Less obvious, at least to begin wigh was how difficult it would be for foreign firms to do business in China. Chian may have huge population, but despite decades of rapid growth,it is still relatively poor. The lack of-purchasing power translates into a relatively immature market for many western consumer goods outside affluent urban areas such as Shanghai. Other problems include a highly regulated environment, which can make it problematic to conduct business transactions, and shifting tax and regulatory regimes. Then there are problems with local joint venture partners that are inexperienced, opportunistic, or simply operate according to different goals. One US manager explained that when he laid off 200 people to reduce costs, his Chinese partner hired them all back the next day. When he inquired why they had been hired back, the Chinese partner, who was government-owned, explained that as an agency of the government, it had an "obligation" to reduce unemployment. To continue to attract foreign investment in late 2000, the Chinese government had committed itself to invest more tha Further commitments were made in the late 2000s. This investment has improved the nation's poor highwey yste The government has been pursuing a macroeconomic policyExplanation / Answer
Answer : Ownership advantage of Apple investing in china :