Inward FDI in China and its policy context in 2012

Abstract

China remains the pre-eminent recipient of inward foreign direct investment (IFDI) among developing countries. FDI flows to the country continued to rise even during and after the recent global financial and economic crises, when many multinational enterprises (MNEs) found themselves in difficulties, demonstrating the continuing popularity of China as an investment destination. Nonetheless, other developing countries, such as Indonesia and Vietnam, are starting to steal China's thunder, offering themselves as cheaper alternatives. Although FDI stock in China reached a new high of US$ 711 billion in 2011, IFDI attraction is losing its former high priority in the Government's arsenal of economic policies, especially as the focus is turned ever more sharply on promoting outward investment. Now that domestic enterprises have taken over most of the functions provided by foreign investment in the first two decades of economic reform (i.e., the 1980s and 1990s), IFDI policies are being concentrated on honing the investment attraction effort to bring in foreign investments capable of filling gaps in the country's industrial structure and helping China meet policy goals such as environmental protection and energy conservation.