1. Group 5
Kushagra Sharma [057]
Mohit Jain [067]
Prodyot Parashar [083]
Raj Kumar Singh [089]

2. • Top destination for FDI for sixteen years.
• US $52.39 B in FDI to China in the first half of 2008 – a
45.6% increase over the same period in 2007.
• Foreign invested enterprises (“FIEs”) play a major role in
China’s economy – 58% of imports and exports.
• Top foreign investors: HK first; US sixth.
• Top FDI destination: eastern region – 81.9%.
• Hot sectors: manufacturing (57.7%) and real estate
(11.9%).

3. • Before 1978, China’s economy was one of the most
autarkic in the world.
• 1950s : Only four joint ventures with the government of
the Soviet Union.
• Between mid 1950s and late 1970s : China turned inward
and pursued an economic development strategy that
prohibited any foreign investment.
• 1980 : First joint venture in China was established in
Beijing.

4. • Inward FDI permitted
• Equity Joint Venture Law (EJV Law) by the National
People’s Congress in 1979.
• Instead of Equity Ceilings, it imposed Equity Floors.
• Only central government approved wholly owned
subsidiaries of foreign firms.
• Long approval delays; eg: 3M (1981-1984)
• 4 SEZ established in southern China in 1980, in
Shenzhen, Zhuhai, Xiamen, and Shantou.

5. • Treatment of FIEs became further codified
• “Wholly Foreign-Owned Enterprise Law” in 1986 and the
“Sino-Foreign Cooperative Joint Venture Law” in 1988
• Legal infrastructure governing 3 main forms of FIEs- Equity
Joint Ventures, Cooperative Joint Ventures & Wholly Foreign-
Owned Subsidiaries.
• 1986 Regulations separated FIEs in 2 kinds- Qualifying for
favorable policy and regulatory treatments and Qualifying for
normal policy and regulatory treatments.
• “WFIE Law” in 1986 & Hainan Island in 1988

7. • This phase removed a large number of the sectorial
restrictions on FDI.
• Business scope and geographic coverage of foreign banks
was expanded
• Joint ventures in transportation, port development, oil
exploration, and financial services were permitted.
• By 1992, China had signed bilateral investment treaties with
27 countries.
• 1992: Chinese and U.S. governments signed a MOU on a
range of issues ranging from market access to IPR protection.

8. • 2nd largest recipient of FDI in the world, following the US
• 1995: Policy measures aimed at “leveling the playing field” between
FIEs and domestic firms
• Removal of the tariff exemption on FIEs’ imports of equipment and raw
materials
• 1998: Renewed across-the-board tariff exemption treatment of FIEs
• Tariff exemption granted to FIEs in product segments promoted by
government.
• Same capital equipment and raw material tariff exemption to domestic firms in
high-tech sectors
• Unified corporate income tax rates
• 33% for all firms

9. • 1999: China and U.S. concluded negotiations over China’s
accession terms into the WTO
• 2001: WTO Ministerial Conference in Doha, Qatar formally
adopted China's terms of membership of the WTO
• Concessions made on the Chinese side:
• Eliminate all import quotas by 2006
• Reduce tariffs on industrial products from an average of 24.6% to
9.4%
• Reduce tariffs on motor vehicles from 80-100% to 25% by 2006
• Allow Foreign firms to own up to 50% of FIEs in the telecom and
insurance industries

11. FDI inflows to China, 1990-2005
1979-2002: A total of $446billion

12. Saving Rate
grew from 36%
to 42% with
growth of FDI

13. • Due to large FDI inflow China accumulated huge foreign
reserve.
• US $300 Billion in 2003
• 3% of GDP
• Investment in US Treasury Bond
• Reserve Surplus helps in controlling domestic currency.

16. Millions of US dollars
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
900 000
1 000 000
2001 2002 2003 2004 2005
World
United States
Developing economies
China
Percent of China in Developing
Economies
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2001 2002 2003 2004 2005
Source- UNCTAD

18. • Hong Kong, Macao And Taiwan account for more than
68% of total FDI inflow in China between 1979-1996.
• Hong Kong, Macao And Taiwan are politically same
country but separate economic entity.
• In 2001 three states together have a share of 42%.

19. Northern : 11.02%
Coastal : 71.28%
Southeastern : 4.76%
Northeastern : 6.42%
Southern : 4.54%
Western : 1.98%
Source: World Factbook
Taiwan
Hong
Kong
Macao

20. To enter any market abroad need huge capital, advance
technology, scale economy, organizational expertise. All
these act as a entry barrier for SME to invest as FDI.
Still China have a significant SME base FDI investors
mainly due to the three inter states - Hong Kong, Macao
And Taiwan

22. • General FDI trend – congregate around few industries with high
concentration ratio.
• FDI in China was contrary to this trend, even for the Ethnically
Chinese Economies(ECG) investing firms.
• FDI distribution in China was:
• More Fragmented.
• Evenly distributed across various industries.
• For example; the Std. Deviation of FDI across industries
was 11.3 for Taiwan; but 4.08 for China.
• FDI distribution spread across traditional industries like:
• Herbal industries
• Handicraft industries – Silk engraving, ivory casting etc.

23. • FDI from ECEs financed China’s labor intensive and export
oriented goods production.
• FIE’s – responsible for tremendous Chinese manufacturing
export :
• 25% from ECEs funded FIE’s
• 47.1% total manufacturing export from altogether
• FIEs – strong dominant position in telecom, garments, plastics
,leather products etc.
• However; two more trends impacted by FIE’s :
• Replacing of exports produced by Chinese entrepreneurs.
• Substantial decline in contractual alliances with foreign alliances.
• Consequently; rise in Equity Alliances.
• This trend was further reversed in the beginning of 1997.

24. • To Protect Domestic Chinese Firms after China Joined
WTO
• To Prepare Domestic Firms for FDI , Govt. Changed
Regulatory , Legal and Financial treatment of Domestic
Firms

25. • Grasping The Big – 120 out of 512 SOEs
• Strengthening the Asset Base and Upgrading Technology
of SOEs
• Reconstructing , Consolidating and supporting Largest
SOEs to Compete with MNCs

26. • Converting SOE’s into Modern Enterprise System – with
shareholding Enterprises , Board of Directors , Accounting
Standard , Financial Reporting
• Reorganizing SOE Asset:
Efficiency from Upstream/
Downstream Production ,
Benefit from Economies of Scale

27. • Govt. Retains Monopolies in Petroleum and Banking
• Discrimination Against Private Enterprises
• Did not allowed to enter in industries where they can threat SOE
• Property Right protection in favor of SOE
• Lending Bias by Commercial Banks
• Foreign Exchange Allocation ( Technology ) Favored SOE
• Licensing Policy Against Private Firms