Foreign Direct Investment in China: Issues and Challenges

Since China adopted economic reforms in 1978, FDI had been playing a crucial role in promoting the swift and sound economic growth of the country. China was the largest recipient of Foreign Direct Investment among the developing countries for 24 consecutive years and FDI continued to play a disproportionately large role in promoting its trade, investment, and tax revenue generation. The visit of US President Richard Nixon (Nixon) to China in 1972 resulted in the country lifting the formal ban on FDI and opened the doors for a diplomatic detente between China and several major industrial nations of the world. However, a number of limitations on the FDI such as a ban on external financing of FDI projects jeopardized the scope for investment until the policies were dramatically changed in 1979. The continual progressive reform in Chinese trade policy since then was one of the major reasons for the huge FDI inflows into the country. Meanwhile, the former Chinese communist leader, Deng Xiaoping’s decision to open China to foreign capital and investment in line with the broad objective of accelerating economic growth helped the country to liberalize restrictions on external debt and equity finance, reducing government controls on foreign trade. .