China as an attractive market for Foreign Direct Investment Essay

China as an attractive market for Foreign Direct Investment - Essay Example This research will begin with the statement that China is the fastest growing economy in the world and since 1980s has been consistently experiencing high economic growth rates. With the sheer size of the economy and the expansion of manufacturing base of the country has made it one of the largest and most lucrative markets to enter by the international firms. Initially China offered great advantage in terms of access to low cost labor as well as raw materials and manufacturing facilities. However, due to its domestic economy size and the rising income levels, China also presents itself as one of the largest market for the international firms to enter into. All major international brands including McDonalds, Apple, Next and all other better consumer brands have made their entry into China to tap into the local market. Foreign direct investment in China and the impact it had on the Chinese economy is considered as one of the most important economic success stories of the recent times. By the end of 1999, China was having $300 billion of foreign direct investment in the country which was merely $19 billion a decade ago. This figure has now increased manifolds and China is one of the largest attractors of foreign direct investment in the world. What is also important to note that most of the FDI in China was through the Greenfield projects with the collaboration of the local players in the market?   Why this has happened and why China becomes an attractive target for FDI will be discussed in this question. Chinese Economy Chinese economy is the second largest economy in the world overcoming Japan as the second largest economy in the world after USA. It is also the fastest growing economy in the world with growth rates of approximately 10% for last three decades. Such consistent economic performance indicates that the Chinese economy has been able to project itself as one of the most important target for foreign direct investment.  During 1950s and 1960s the ov erall focus of the government was on controlling inflation through tighter budgetary and monetary policy controls. Though China is still a communist country with government controlling most of the resources of the country but it still managed to make a transition to market based economic practices. Though It has the history of nationalizing the banks and other institutions however, it has been continue to attract foreign direct investment in the country. There can be different reasons as to why China became the attractive economy for the foreign direct investment. More important reasons are discussed below: Quality of the Government Though China is the leading centrally controlled economy after USSR with government controlling most of the resources however, it is still considered as the mmarket-friendlygovernment. It has been argue that despite constraints, China has been able to put in place an effective FDI governance mechanism in the country. The quality of the government, overal l policies and the environment presented in China serves as one of the biggest motivating factors for international investors to invest in China. It is also important to understand that greater control of the Chinese government on the management of overall affairs of the economy may be supportive too. Since the government is politically strong therefore foreign direct investment may have become easier.