Foreign direct investment in China has grown gradually each year since the Chinese Government adopted policies that would attract foreign investors in the late 1970s. Direct foreign investment is somehow a type of financing different sectors in a country’s economy by investment companies that are located outside the specific country’s territory.

Investment companies can becomes foreign direct investors if they acquire at least 10% of the voting power of an enterprise. Direct foreign investment can take several forms. In some countries foreign investment is made by incorporating subsidiaries or other wholly owned companies, by acquiring shares in an associated enterprise or by merging or acquisition of a completely different company. Another popular form of foreign direct investment is the joint ventures with other investors or companies.

Theoretically, the foreign direct investment has the purpose to stimulate the economy and to promote sustainable development. In reality, the effects of this type investment can be destructive for a specific country’s economy. And there we have India’s exemple. When it came to the foreign direct investment India adopted restrictive policies in some sectors such as retail. The Indian Government considered that an excessive foreign investment in the retail sector would lead to a severe destabilization of the overall economy of the country by reducing the number of employees in the specific sector which is also the second largest employment area in India. This would have also lead to the depression of the income of those working in the largest employment sector of the country, agriculture.

But the foreign investment can indeed have great benefits for a country such as China. Since Deng Xiaoping has adopted open policies for foreign investors in the late 1970s, the foreign direct investment inflow has constantly grown with few exceptions when the country was politically destabilized by the Beijing Massacre. However, China reached a record in 2008 in what concerns the foreign investment inflow when it was able to absorb more than $90 billion from foreign investors.

But still, foreign investment has its advantages and disadvantages. A country with many stakeholders is a country that proved to be politically and economically stable enough to attract foreign investors and these countries usually look good in the eyes of the international community. On the other hand, it seems that many investment companies prefer investing in rich countries through mergers and acquisitions mainly due to the decreased risks. However, those that invest in developing countries are facing greater risks but also in case the project proves to be a success the profit will be much bigger. Thus, most of the investment companies are first considering the risks when deciding to invest in a country.

The success of foreign direct investment depends in great part on the Government economical and financial policies but not exclusively. Every economy is different and the approach must be according to each economy. Even if foreign direct investment in China brought the country’s economy great benefits, this does not have to happen in all the countries that bring foreign investors which were proved by India and its restrictive policies in the retail sector.

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