HOW HAS CHINA'S OUTWARD FDI DEVELOPED AND WHAT BUSINESS STATEGIES DOES IT SERVE - Essay Example

Since the establishment of this law, China has developed from a country with small reference for outward FDI, to an influential emerging nation. The development of China’s FDI policies can be divided into three phases; the first phase took place between 1979 to 1992, the second phase took place between 1993 to 2001, while the third phase has been ongoing since 2002. 1979 to 1992: Special economic zones. During this period, the joint venture law was enacted, followed by a number of accompanying laws aimed at directing the management and taxation of the Foreign Invested Enterprises (FIEs).

The initial four Special Economic Zones (SEZ) were also established and this played a very significant role in encouraging the inflow of technology, managerial expertise, skills, and foreign investment. The government of China encouraged inflow of foreign investment into the special economic zones by offering a number of conveniences and special support in taxes. For example, the special economic zones enjoyed lower corporate income tax compared to other regions in China and additional tax holidays together with the FIEs, compared to those that the national tax legislation offered.

Zheng (2013) points out that on top of the tax incentives, the government further broke down and rationalized official and conventional procedures, consequently reducing FIEs operation costs further. More SEZs were created, while the initial three Open Economic Zones were established in 1985, followed by others in the years that followed. 1993 to 2001: Transition period. China experienced a growth of its outward FDI between 1992 and 1993 (Zheng, 2013). As this happened, the government of China opened more cities to the outside world.

Sectors such as finance, shipping, real estate, and domestic retail where foreign investment was previously forbidden were opened up to foreign investors. However, China suffered a reduction in the investment boom in 1994, due to unfavorable macroeconomic conditions, and despite the fact that the economy began to recover after this, it again fell due to the 1997 Asian financial crisis. Consequently, FIEs suffered lack of profitability, which was further exacerbated by the re-imposition of materials, equipment and machinery duties in 1995.

The duty imposition policy was corrected in 1997 and foreign investment guidelines for industries were released by the state council in 1995 (Zheng, 2013). This was followed by division of industries into forbidden, restricted, or encouraged depending on their FDI status. Constant updating of the guidelines has taken place over the years mainly to promote environmental protection, encourage resource conservation, introduce advanced technology, and maintain a balance in regional economic development (Zheng, 2013).

2002 to present: Going global. After China’s acceptance into the World Trade Organization, there was an improvement in its inward FDI. This influenced the nation in becoming the number one destination for foreign investment worldwide. In addition to this, the nation has also become a demanding source of outward FDI. This has been as a result of stimulation of outward FDI, high prices of goods, and the rapid economic growth within China. At the beginning of the twenty first century, the nation introduced a