Regulation Of Foreign Investment On China

It is this that has sparked China’s vulnerability to external shocks. In 2011, China’s exports amassed almost $2 trillion, however in Feb 2012, China recorded a $31.5 billion trade deficit as a result of the European sovereign debt crisis in which China’s main trading partners plunged into recession. China’s severe BOGS decrease is an attempt to control growth and a sustained level of 7.5%. Investment policies are also critical for China to achieve economic growth and development. Foreign Direct Investment (FDI) in China is being sought primarily in the redesign of State Owned Enterprises (SOE’s) and in the development of interior provinces. Between 75-80% of World Bank loans to China in 2008 were directed to the central and western regions, the most economically disadvantaged. This promotes increased wealth within China, leading to higher levels of development due to a more positive Human Development Index (HDI), which currently sits at 0.687, up from 0.677 in 2010. Thus, trade and investment are critical factors in ensuring that China’s growth remains sustained at 7.5% whilst still encouraging increases in development.

The question selected for this research paper has been a thought of many property professionals, particularly over the past few years as more and more foreigners enter the Australian property market. This research paper will broadly help the greater community and directly influence the typical Australian property investor who will benefit through further understanding the positive and negative impacts of foreign investment, further more:

Internet censorship and the requirement of self-censorship not only harm the economy inside China, but also are negatively affecting China in aspects of international commercial trade, even as globalization becomes the trend of today’s world. Chinese Internet censorship is applied to both directions; not only blocks Chinese Internet users’ access to certain foreign websites, but also prevents foreigners from knowing the truth about China through refusal of releasing reliable information. So when foreign companies want to enter the Chinese market, they face a serious question: “How do you assess an investment opportunity if no reliable information about social tensions, corruption or

Foreign investment is an important part of our economy. There are many benefits to foreign investment in any country. It would be very difficult or impossible today to close the doors to foreign investment. The fact is foreign investment is responsible for providing a great deal of needed capital in this country. This capital is an asset in the continuous modernization and expansion of our manufacturing and other productive facilities. Without investment in our factories and processes we would fall behind in the world market. These investments lead to increased competitiveness within the international community.

One reason for the concern is the current doctrine of immunity, why this is of concern. In the world of international investment, regulations have not always been equal and perhaps in this current moment, it remains varied, at

China government give opportunity for invest in the country such as give low corporate tax, directly start the business without any join venture with local partner, government will provide loan facility. If the firm breaks the law and regulations, government can immediately close down the firm.

To attract foreign investors China will have to change or modify its foreign policy. These changes first became apparent in 1995 when China opened their doors to American movies, music, and software. Then in 2000 they promised to make their currency convertible for foreign trade. They have also continuously cut tariffs and regulations to gain admittance into the WTO.

Since the openness policy in1978, China has attracted a magnitude of foreign direct investment from all over the world. Rapid economic growth, large market opportunity, and endless cheap high-quality labor forces have turned China into a utopia of investment. With its evolving economy and enormous array of market opportunities for foreign investment, China’s institutional environment has played a dynamic role in its economic state (Marinov & Marinova, 2012). According to Geringer, Minor, and Mcnett (2014), institutions involves the country’s rules, regulations, and informal codes of behavior that helps administrate the country’s economic position. Institutions influence behavior in several ways whether it’s through laws or regulations, or through norms, values, customs, and ideologies (Geringer et al., 2014). Institutions also define conditions and set limits for maintaining a stable system as they control social relations to maintain conformity.

I found this article "Foreign direct investment: Companies rush in with the cash" on the financial times website (www.FT.com) published December 11, 2002 written by John Thornhill. The reason for choosing this article is my personal interest in the Chinese economy and its attractiveness to the foreign investors. Apart from the foreign direct investment this topic has also helped me in understanding the impact of Chinese economy on the global market.

The graph describes the foreign exchange reserves in China which expressed a dramatic increase between 1985 and 2006. Due to the Chinese economy development, an increasing number of foreign investments are keen to enter the Chinese capital market. Moreover, a significant number of Chinese corporations would gain more opportunities to cooperate with foreign companies and learn from each other. It also provides them enough foreign capital to invest in the international markets. But a large amount of foreign capital holding flow into China that may pose threat to domestic companies, namely the foreign companies may rob the domestic companies’ market share for their future development. So the Chinese government may consider building a security limitation of foreign exchange reserves.

China’s accession to the WTO in 2001 has helped shape its economy to becoming a more predictable environment for trade and foreign investment. Corporate governance and frameworks for business operations and interactions have improved, providing a much more transparent environment. (Deckers, 2004)

Despite the high levels of corruption, investors do not seem to be deterred from doing business in China. Some believe that corruption acts as an effective “grease” to speed up the many layers of bureaucratic inefficiencies for starting of businesses in China (Meon, Weill, 2008). Furthermore, the policy of regional competition in China has caused the competitive lowering of bribes in order to attract businessmen with a lower “unavoidable cost” of doing business in the region. (Li, Peng 2001). Another reason would be the high predictability of corrupt practices in China (Campos, Lien, Pradhan, 2001), to the extent where investors factor “bribes and gifts” as a portion of their budget. Hence it does not appear as a deterrent to businesses when they enter the market (Dickson, 2008). Corruption due to “Guanxi” is also explained to enhance efficiency, because “Guanxi” contributes to high levels of public trust that encourages business ventures due to the availability of valuable information that reduces uncertainty (Li, Wu

Their priority now is not to attract as much foreign investment as possible, but to bring in new high-tech industries that they currently don’t have. Besides that, Jin Bosheng, a research analyst with the Ministry of Commerce, said the government was showing particular interest in new high-tech industries, especially electronics, biology, petrochemicals and medicines, which indicated it was seeking to redirect foreign investment.

Although China has initiated market deregulation, foreign financial institutions are still facing intensive monitoring from Chinese authorities. Compared to the UK, the US and other developed countries, the degree of openness of Chinese financial market is still low. According to current Chinese law (Appendix I), foreign financial institutions experience difficulty in obtaining a controlling interest of more than 50% or in becoming a majority shareholder in target firms. This situation is similar to most M&A cases in Hong Kong, which are partial mergers or acquisitions (Cheng & Leung, 2004). Moreover, another unique characteristic of Chinese targets is that the majority are unlisted financial institutions. Therefore, it is more feasible for foreign financial institutions to enter the Chinese financial market by merging with or acquiring Chinese financial institutions.

Security investment to external is continual increasing. There are two main reasons. First, many Chinese bank increase the foreign exchange capital because of the innovation or come into the foreign market. Second, may be the international financial market rate increase and local financial finite market, so they choose increase the foreign investment.