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China is the world’s most populated country. Since 1978 the country has abandoned its policy of self - reliance and undertaken pragmatic economic reform. China has opened its economy and society to the outside world in order to spur modernisation of the country. Since the 1970’s China has become more and more involved in the international economy and world trade.
China has made the key decision to undertake economic reform and commenced opening up its markets to the outside world. FDI was first allowed into China after the promulgation of the Joint Venture Law in 1979 and the establishment of four Special Economic Zones (SEZs) in Guangdong and Fujian provinces where preferential economic policies were pursued. During 1979-1985, foreign investments were concentrated in small-sized assembling and processing firms primarily for exports.
In 1986 the Chinese government released encouraging provisions for FDI - the 22 Articles. To encourage foreign investment in high technology industries, all open coastal cities set up the Economic and Technical Development Zones where extra tax breaks and other incentives were offered. Since then there was a rapid increase of FDI.
As shown in Figure 1.1, FDI inflows in China experienced the most spectacular increase in 1991-1993, with an increase in the annual rate of 150 per cent, followed by still very high growth rates until 1997. The surge of FDI inflows in 1992-93 was mostly driven by Deng Xiaoping’s encouraging speech in Spring 1992 calling for further economic liberalization and opening-up, and the following round of new measures issued by the government to further attract FDI. Since 1994, foreign investment in China has presented some new features. The average capital size of foreign investment projects increase, with the main focus shifting to large infrastructure and manufacturing projects. (Sun, 1998) The growth rate of FDI is back to a sustainable level from an unusually high level. Although FDI inflows...
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