1. Discuss China´S Expansion Strategy on Foreign Direct Investment (Fdi).

1. Discuss China´s expansion strategy on foreign direct investment (FDI).

Foreign Direct Investment is the components of national financial accounts of different countries, an investment of foreign assets into organizations, domestic structures and equipment. However, it does not include investment into stock markets. “Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.”

Since 1993, records show, that China has gathered the largest amount of FDI inflow of all developing countries, with about 90 percent of it brought in by Greenfield investment. A series of FDI policies have been formulated by the Chinese government, such as tax incentives and the Guiding Directory on Industries Open to Foreign Investment. This clearly outlines the importance of FDI to China. By the end of 2003, China accumulated more than 500 billion Euros in FDI and these figures were predicted to double by 2012. Taking a closer look at China and the reasons for this significant increase, Hong Kong and East Asia can be clearly identified as the most important origin of Chinas FDI. China, as an ideal low-cost production location with their low wage level, is very attractive to their direct neighbors. For information, “The wage levels in the United States, Japan, South Korea, and Taiwan are 47.8 times, 29.9 times, 12.9 times, and 20.6 times those of China. China has a massive advantage over other developed or developing countries, as they have lower production costs and a enormous potential in growth for the domestic market. China is playing these strengths out and is trying to keep this advantage edge over the corner. However, all these countries are producing in China and exporting their goods after, so China introduced a new trade policy, which exempts...