Prospects of Foreign Direct Investment in China - Term Paper Example

The paper "Prospects of Foreign Direct Investment in China" is a brilliant example of a term paper on business.

The potential return on FDI in China
China’s persistence in attracting FDI is one good reason why future investors are attracted to its large market. Economies of scale make it better for the multinationals in China to be located in the same areas and share information.
China provides a lot of incentives to companies that plan on investing. According to some statistics, in 2008 china was the most attractive country for FDI. China is a country where cheap labor is easily available giving a cost advantage to the companies investing. (Diego Quer, 2008)
Moreover, China is largely a buyer’s market keeping in mind the country’s population of 1.3 billion people. And with time there is an expectation that the purchasing power of Chinese residents is likely to increase sharply because of the lower rates of inflation and a good annual GDP growth rate of 8 % for the country. To top it all China’s government recently has eased down the regulations and laws concerning foreign investment in China. As a result of these incentives, a lot of companies invested in China and according to research FDI flows into china were of about 83.5 billion dollars which grew to 108.3 billion in 2008 with continued investment announcements and a positive investor outlook. (Jianhong Qi, 2008)
The trend of FDI in China has changed since 2001 after it joined WTO. Since then until now foreign investors who have invested in China have formed companies entirely owned by foreign capital. Other than industry and hi-tech foreign investment is also allowed in the financial services, insurance, and banking sectors. (Jianhong Qi, 2008)
 
Tax benefits
Most of the benefits that the Chinese government offers to foreign investors investing in China are in the form of tax benefits. These include customs and income tax benefits which are given for investing in a particular special economic zone. Also, value-added tax benefits are offered. These benefits are approved mostly depending on the nature of the investment. (Diego Quer, 2008)

Special Economic Zones
Talking of the Special Economic Zones in China, there are 5 zones in the south of China here tax benefits are offered. These tax benefits include a corporate tax of 15%, a tax exemption for the first two years of operation along with a tax rate of 12.5% for another three years, a 6 years tax exemption for projects in environmental protection, infrastructure, and energy. (Kandil, 2011)
There are similar benefits offered for the investment made in Shanghai where there are 5 development zones specializing in agriculture, financial services, etc.

FDI confidence index
The foreign direct investment confidence index provides a unique look for companies intending to invest internationally giving them an insight into the present and future prospects. This survey is conducted by A.T. Kearney
Since the year 2002, China was a top-ranked destination for foreign investors. Also according to the 2010 FDI confidence index, China holds the top position among the 25 countries with high confidence of investors. This index and optimism of investors is an indication of a strong economy. (Kandil, 2011)