Foreign Direct Investment in the Chinese Soybean Processing Industry.

Introduction

Foreign Direct Investment (FDI) occurs when a firm invests directly in facilities to produce or market a product in a foreign country (McGraw-Hill, 2011). Jiusan Group, one of China's largest domestically owned soybean pressers, is signaling that it would be open to internationalization-with conditions. Given this statement, it is clear that Chinese soybean companies are willing to expand and welcome foreign direct investment.

Analysis

China's soybean pressing businesses were buckling under double pressure from market fluctuations and government intervention in the trade. Industry experts feared that the "internationalization" of Jiusan would herald the beginning of another industry reshuffle for China's soybean businesses.

In just a few years, China has become the main world importer of many primary products. Furthermore, since the 1990’s China has become the principal destination of foreign direct investment (FDI) within the developing world, with almost US$ 70 billion of inward flows (average per year) between 2003 and 2007 (UNCTAD, years 2006−2008). All these figures give support to the following statement: “this economic giant matters”

(Dougherly, 2008).

Foreign investment in China’s soybean crushing industry has grown rapidly during the past 10 years. Even though China’s ever-growing demand for soybean oil and soybean meal was the driving force behind the entry of foreign investments into China’s soybean crushing industry, the Chinese government’s preferential policies have played an important role in encouraging investment in the soybean crushing industry.

One of the most important preferential policies the Chinese government put in place was that foreign ventures pay business income taxes at a much lower rate compared to their domestic Chinese counterparts. Though the policy was applied to a wide spectrum of the industries, and not just specific to the soybean crushing industry, it did apply to the soybean industry and this policy...