Chinese Government’s Updated and Reformative FDI Policies

Foreign direct investment is a much-discussed issue in the current global scenario. Even a few years ago, Chinese government had a conservative outlook on FDI issue, but as China has become the business interest for the global companies, the Chinese authorities had to revamp their FDI approach. China’s State Council has called on the ministries to further open the country’s economy to foreign companies.

What is FDI?

Foreign direct investment (FDI) is an investment in a business by an investor from another country for which the foreign investor has control over the company purchased. FDI is distinguished from portfolio foreign investment (the purchase of one country’s securities by nationals of another country) by the element of control. Standard definitions of control use the internationally agreed 10 per cent threshold of voting shares, but this is a grey area as often a smaller block of shares will give control in widely held companies. If an investor owns less than 10 percent, the International Monetary Fund defines it as part of his or her stock portfolio. A 10 percent ownership doesn’t give the investor a controlling interest. It does allow influence over the company’s management, operations, and policies.

FDI in China-

According to the 2017 World Investment Report published by UNCTAD, China was ranked the world’s third largest FDI recipient after the United States and the UK. The country’s economy was ranked the second most attractive to multinational companies for 2017-2019, after the United States. Chinese-Foreign Equity Joint Ventures are also called as Share Company with Foreign Investment. They are enterprises jointly established within Chinese territory by foreign companies’ enterprises, other economic entities or individuals on one side and Chinese companies, enterprises or other economic entities on the other side.

Upgraded FDI policies of Chinese government-

A comprehensive and logical approach on FDI policies has been taken by the Chinese government alongside economic development and strengthened institutional capacity. As China’s equally giant neighbor India, is giving them tough competition, China has realized that without bringing positive changes to their FDI policies, it would be really tough to be in the competition. Without making this country a fair playing ground for the foreign companies, they will not be able to take the progress in their desired way.

The government has taken the problematic issues pointed out by the foreign companies while doing business or investing in this country very seriously and trying to offer quick remedial measures for them. Problematic issues include:

  • Chinas legal uncertainty
  • Lack of transparency
  • Insufficient protection of intellectual property rights
  • Bureaucratic and political corruption

Although it would be too good to be true to think that Chinese government will totally abstain from their protectionist attitude of favoring local businesses, but crucial changes are taking place in China in order to make this country an ideal destination for the foreign investors.

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