Foreign direct investment in China

After decades of self-isolation from the outside world, the Chinese leadership officially announced the door policy in late-1978. In line with this policy, China adopted a strategy to use private foreign capital to spur economic development. During the 1980s, foreign direct investment (FDI) was actively pursued by China. There is considerable controversy about the relative costs and benefits of FDI to developing countries. Ever since China opened the economy to FDI, the nation's ability to reap the benefits and avoid the negative results of FDI has become a major focal point in the international arena, especially in Communist/Pro-communist countries. China's experience in absorbing FDI has important implications for other Communist/Pro-communist countries, and can help predicting what is likely to happen in these countries if similar policy is adopted.The goals of this report are to review the pattern of FDI in China during the 1980s, study its nature, evaluate its impact on the Chinese economy, predict the likely future development of FDI in China and examine the implications of China's experience to other Communist/Pro-communist countries. It is difficult to see the first ten years of China's foreign investment policy as anything other than a resounding economic success. The Chinese goals of increased exports, capital inflows, improved management skill and technology transfer have been met, although not exactly as China's policy makers intended. Base on the analysis of the major factors influencing China's policy, it is expected that China will continue to open her economy to foreign investment. China has her unique strengths to reap the benefits of FDI and control its negative results. The apparent success of China's foreign investment policy in terms of attracting and controlling FDI will encourage other Communist/Pro-communist governments to try to emulate them. However, given the unique nature of the economic and political environment in China, it is unlikely that the same policy can be applied successfully in other Communist/Pro-communist countries.