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Foreign Direct Investment is the capital invested in a country. FDI offers manufacturing capabilities for world markets and native consumption. It is an instrumental tool because it is used to bring both goods and services to the global marketplace. In addition, the influx of foreign investment brings about confidence in the business and geopolitical climate of the country. China is one of the countries that are reaping the benefits of FDI. The ministry of commerce in China reported that the FDI in 2010 for the first time surpassed $100billion. So what are the factors that affect the Chinese FDI?
- Availability of Capital
China is currently the world’s largest recipient of foreign capital. FDI represents the capital that a foreign investor is willing to risk within a local region. China has a thriving economy. The capital markets and conducive business environment create large swaths of investable capital. A portion of this investable capital is converted to FDI.
China brags of developed infrastructure, availability of resources (both physical and labor, development of the business value chain, workforce skills, and productivity which makes it an attractive destination for investment capital. This makes the country gain a competitive edge over other nations like India, that vie and compete for the same investment capital.
- Regulatory Environment
The government of China has enacted policies and rules that favor investment. Unlike other countries with excessive regulations which hinder entrepreneurial and commercial activities, the national government has removed cumbersome compliance items that may encourage an investor to set up the facility elsewhere.
A stable political and economic environment facilitates an influx of FDI. With stability, investors are able to gauge the future better. On the contrary, rioting and constant social unrest are not conducive for businesses. Although criminal activities, kidnappings, blackmail, and counterfeit currency have been a problem in China, the government is fighting to combat all the problems that are trying to undermine the efficacy of trade activities.
- Local Chinese Market
China is known for its sheer size population. This enables foreign enterprises to sell to a sizeable local market. As a result, this makes China an attractive destination for FDI. The Chinese economy is continuing to prosper and mature. High-end industries such as robotics, engineering, information technology, healthcare can now gain a bigger footprint in China since the FDI determinants are enhanced.
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