What Are The Reasons For The Huge Foreign Investments In China?

The reasons for the investment are fairly obvious. China is the world's largest potential market in the world and it has 1.3 billion populations.

Import tariffs have made it difficult to serve this market via exports, so foreign direct investment was required if a company wanted to tap into the country's huge potential. Although China joined the world trade organization in 2001, which will ultimately mean a reduction in import tariffs this will occur only slowly, so this motivate for investing in China will persist.

Also many foreign firms believe that doing business in China requires a substantial presence in the country to build guanxi the crucial relationship networks. Furthermore a combination of cheap labor and tax incentives particularly for enterprises that establish themselves in special economic zones makes China an attractive base from which to serve Asian or world markets with export.


By 2001 foreign affiliates were accounting for some 50 percent of all exports from China with rapid growth in exports of high-technology product from China made by the Chinese subsidiaries of companies such as Samsung, Nokia and Motorola. Less obvious at least to begin with was how difficult it would be for foreign firms to do business in China. Blinded by the size and potential of China's market many firms have paid scant attention to the complexities of operating a business in this country until after the investment has been made.