FDI in China: A Comparative Perspective with India

Abstract

The present chapter presents the FDI policy reforms in China with the objective of drawing a few useful policy lessons for South Asia and particularly India. This chapter shows that export-oriented FDI along with development of special economic zones and special incentives given to foreign investors and a congenial business environment have been the key features of China’s FDI policy. China has followed a comprehensive approach to FDI comprising of a series of measures including creation of world-class infrastructure and supply of cheap labour, power, SEZs, flexible labour laws, preferential treatment, and single window clearance to FDI in contrast to the piecemeal and compartmentalised approach to FDI by South Asia. The South Asian region needs to draw the right lessons from China and should concentrate on improving the domestic economic environment through second-generation reforms, invest in infrastructure, focus on privatisation, reduce corruption, and improve policy implementation to attract FDI into the region. Policy aim and ease of its implementation are two key elements that separate India and China. China due to its centralised political system can move ahead with reforms with speed and ease which is difficult to replicate in decentralised structure of India. Nonetheless, South Asian countries, particularly India, have a lot to learn from China example and modify it to suit our need.