Foreign investment in China proved to be a great success in stimulating the country’s economy. But what is a foreign investment? Foreign investment happens when a company invests private capital in a country that is different than the one where the company operates in. The company that invests its capital in companies from other countries is called foreign investment company.

Usually, foreign investment or foreign direct investment is done through various means. An investment company can invest capital in a country by acquiring subsidiaries, by mergers or any other form that is stipulated in the foreign investment law. In most of the cases, this type of investment is able to promote sustainable development. This however depends on each country’s openness to foreign investment. For example China has known policies that promoted and help foreign investors to come and invest in the country since late 1970s. Thus, the Chinese Government provided various tax and financial opportunities for those foreigners interested in investing in China and got financial sustainability in exchange. Also, a country with many foreign investors looks more stable in the eyes of the international company as it is a proof that it can provide different financial opportunities to foreign stakeholders at minimum risks.

Still, China example is not viable for other countries and this is one of the disadvantages of this type of investment. In theory foreign investment is supposed to promote economical growth and sustainable development but in reality we can see that most of the investment companies would rather give their money to richer countries than to the developing ones. The reason is mathematically simple: because the risks are lower. On the other hand, some investment companies prefer investing in developing countries because when the risks are higher so is the profit in case the project is successful.

Whether foreign investment is risky or not or profitable for the investment company or the foreign country depends on various factors. One of the first is the foreign investment law in the specific countries. Some countries have more open foreign investment policies whereas others prefer sustaining their own producers. As a matter a fact, an unorthodox policies proven to be used by the investment companies is to borrow money from local banks at favorable interests which leads to a disadvantage for the local producers. And some Governments do not want this to happen and as a result their foreign investment policies are more restricted.

The way the investment companies work is quite simple. Anyone who has enough money and is able to not physically have it for longer periods of time (usually more than five years) can invest it in such a company. From the stakeholders point of view investing your money in this way is safer than investing it on your own since the loss is divided between all the investors.

Foreign investment in China reached a record in 2008 when this country could absorb up to $92 billion from foreign investors so its example should be followed by other developing countries.