In China foreign direct investment has grown over the years beginning with the 1908s and reaching a record of over US $92 billion in 2008. Since two years ago however in China foreign investment is gradually falling.

The foreign direct investment, also referred to as FDI, is the long term participation by one country into another, and it can take various forms. FDI normally refers to the participation in management, joint-venture, transfer of technology and sometimes the so called “know-how”. FDI can basically occur as an inward foreign direct investment or as an outward foreign direct investment and it may result in a positive or negative net FDI inflow.
As we mentioned above, FDI refers to long term participation by various categories of foreign investors in another country than they originate from. Usually, a foreign investor can be an individual, a group of individuals, an incorporated or an unincorporated entity or a public or private company. Other investors can be the groups of related enterprises or government bodies as well as an estate law, trust or any type of societal organization.

In a foreign direct investment, the investor is able to acquire 10% or more of the voting power of an enterprise either by incorporating a wholly owned subsidiary or by acquiring shares in the associated company. Also, the investor may acquire different percentages of the voting power through the merger or the acquisition of an unrelated enterprise or by participating in an equity joint venture. Joint venture is usually done with other investors or companies.

The FDI incentives can mean low corporate tax, tax holidays or any type of tax concessions. On the other hand, it can take the form of preferential tariffs, special economic zones, financial subsidies, soft loan or free land and land subsidies. In some cases, the incentives can refer to relocation and expatriation of the subsidies, to job trainings and employment subsidies, derogation from regulations and infrastructure subsidies.

In China direct investment was launched by the economic and financial policies sustained by Deng Xiaoping who opened up China for foreign trade. This was happening in the late 1970s and by the early 1980s the first Special Economic Zones were ready to absorb foreign direct investment from Hong Kong and not only. In the 1980s China direct investment flow grew constantly but was still quite low. However, by the late 1980s many companies withheld their investments due to the Beijing Massacre which lead to the temporarily falling FDI.

Foreign investment has reached a record in 2008 in China but since then the FDI inflow was constantly falling. Still, China provides many opportunities to foreign investors due to the financial law and the cheap labor. The China foreign investment is still an opportunity for many investors from western countries even though the number of the foreign investors is decreasing.

The foreign investment is still a chance for this country and so it is estimated that within few years in China foreign direct investment will recover and perhaps the FDI inflow will start growing again, reaching its previous values.