Why has China attracted such huge amounts of foreign direct investment (FDI) over the last 30 years?

Résumé ou Introduction

Foreign direct investment (FDI) occurs when a firm establishes, acquires, or increases production facilities in a foreign country, fundamentally it’s a movement of capital. Critically FDI is a key business indicator as it demonstrates that Multi-National Companies (MNC’s) have set out strategies to exercise their control in foreign countries and overseas markets.

Over the last thirty years China’s FDI inflows have grown at a staggering rate. In order to understand the reasons why this pattern has occurred both the micro and macro environment need to be considered. Therefore, it is evident that a number of factors need to explored, this is what the first part of essay discuses.

The second part of the question is inevitably based upon opinion and prediction. In order to judge if the trend of FDI is to continue, it has to be constructed upon the past trends but also the external environment. For example, The Economist has built a case for why India’s annual GDP growth will outpace China. Fundamentally, this kind of speculation amongst the business world is likely to raise questions on the location of where MNC’s will do business and where FDI will follow. This will be further explored in the second part of the essay.