Abstract

The case is about the rise of China as the top recipient of FDI in the world with the adoption of the policy of economic transformation. China has moved away from an almost isolated centrally planned economy toward a market-oriented system that has made the country an attractive investment destination for multinational corporations. Accelerated economic reform initiatives and the aggressive opening up of the Chinese economy under the leadership of Deng Xiaoping resulted in a noticeable surge in foreign capital inflow into the country. The case outlines the conditions that led to the story of huge inflow of FDI into China, the effect of FDI, and the issues and challenges confronting FDI in the country. It explores the diversified dimensions of the occurrence of FDI and encourages students to find out country specific macro and firm specific micro factors that attract FDI. It will help the students analyze the reasons for the massive inflow of FDI into the country and the policy measures undertaken by the government to sustain the trend of incoming FDI for the future decades to come. However, the mature phase of the market economy and growing structural challenges in China have made it difficult for the multinationals to maintain their business in the country. The overdependence of the country on investment and exports during the decades of rapid growth has resulted in a set of socio-economic and environmental challenges for the government. Balanced regional development has been the major challenge for the policy makers as the “Go West” program of the government faced some key policy issues in the context of its application to the distinctive conditions of the interior regions. Further, China’s preferential trade policies came under controversy to comply with the broad guidelines of global trade, following China’s accession to the WTO. The case discusses how China faces the challenges of stabilizing its economic growth by mobilizing and utilizing more FDI.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the growth model and changing dynamics of FDI in China
• Explore the trend of international investing and its impact on the Chinese economy
• Understand the factors responsible for the massive inflow of FDI into China
• Identify the issues and challenges China faces going forward, to attract FDI into the country
• Analyze the reasons for the changing course of international investing in China and the road ahead

Keywords

Economic transformation, Growth model, FDI inflow and outflow, Preferential policy, Market-oriented economic reform, Open-door policy, Balanced economic development, Consumption-driven economy, Value-added manufacturing, Development strategy, Overseas FDI strategy, Economic slowdown