SEMINAR REPORT: III

Subject: Business Environment

MBA SY Sem III

PANKAJ KAPSE

Roll No: 18

MBA SY Sem III

SRTMUN

Sub Centre LATUR

 China FDI rises despite western concerns
over business environment
Foreign Direct Investment (FDI) in China spiked up for 13th straight month in August, despite
complaints from the US and European companies over alleged unfair business environment and
the Chinese government's favors for domestic firms.

FDI to China increased by 1.4 percent to $7.6 billion in August year-on-year, according to the
Ministry of Commerce.

From Jan-Aug, total FDI stood at $65.96 billion, up 18 percent compared with the same period
last year.

According to a recent report from the United Nations (UN), China, which stood second in
attracting FDI globally in 2009, will remain the most attractive destination until the end of 2012.

In 2009, FDI to China stood at $95 billion while the US attracted $130 billion, the UN report
said in July.

On Monday, Chinese Premier Wen Jiabao gave assurance on creating level playing field for
foreign companies in the country. In reply to growing concerns over his policies favoring
domestic companies, he also promised equal treatment for all products made in China in
government procurement.

Last week, the European Union Chamber of Commerce expressed concerns over the barriers for
its members in China, contending that there existed discrimination in enforcing environmental
and labour laws and in certification requirements for market access for foreign firms.

A similar concern was expressed by the US in July over China’s indigenous innovation policy
that supported domestic technologies.

The European and the U.S. trade bodies said that their products are not treated on par with the
local products and the new rules favor domestic companies in government procurement.

Earlier this week, World Bank’s president Robert Zoellick urged both the countries to go
cautiously on trade issues, adding that protection measures were quite dangerous.

With China being the top destination, the FDI globally is estimated to reach $2 trillion by 2012,
according to the UN’s trade and development agency.

Analyst see low-cost labour and domestic market potential as the main reasons behind increasing
FDI flows to China.

The rise of foreign direct investment (FDI)

During the Mao period (1949-1976), China spurned foreign
investment and paid back all its foreign loans (mostly to the Soviet
Union) by 1965.

After taking over economic

policy at the end of 1978,
Deng Xiaoping opened up
China to foreign trade and
investment and in the
early 1980s the first
Special Economic Zones
were set up to absorb
direct investment from
Hong Kong and elsewhere.

During the 1980s, FDI

inflows grew steadily but
remained relatively low,
confined largely to joint
ventures with Chinese
state-owned enterprises.
After the Beijing Massacre
in 1989, western and Japanese companies withheld investment in
China, but the momentum was maintained, partly by a new influx of
capital.