Foreign Direct Investment in China: Issues and Challenges

The changing economic environment made a significant impact on China’s attractiveness as a destination for foreign investment. Earlier, investors had considered China a lucrative avenue for the labor-intensive manufacturing industry, taking into account its large untapped market, fast economic growth, and low labor costs for their investments and operations. However, a distinct sector-based change took place in inward FDI absorption in China when the country moved up to transition into a market- , knowledge- , and consumption-driven economy. As China rebalanced its economy, moving away from its heavy dependence on exports and investment-led growth, FDI growth continued in the service sector which was growing in size and importance. Further, in 2014, the Chinese government issued a number of policies to facilitate FDI in service industries such as finance, health care, tourism, and entertainment in an effort to stabilize the growth of inward investment and improve the quality of investment. The new policy guidelines of the central government gave foreign investors better access to the Chinese market for financial services. The foreign firms entered the Chinese market to reap the consumption power of its vast population, which had been gradually unlocked. Their inclination to invest in China was further fueled by the government’s pledge to double the average per capita income by 2020 and its policy to open up the service industry.... .