Direct Foreign Investment in China: A Comparison of Investment from Taiwan, Hongkong and Macao to that from Western Developed Countries

Since China opened the door in 1978, China’s economic reform has made considerable progress. China’s economy has grown at an average inflation-adjusted rate of 8.9 percent annually. Its GDP was only US $25 billion in 1978, however, in 1992, it reached US $411.6 billion. It is estimated to be the third-largest economy, after the U.S. and Japan. Foreign investment has made a great contribution to this success. Over the past decade, China has attracted almost $90 billion of direct foreign investment. Foreign-funded firms, including joint ventures, accounted for 28 percent of China’s exports in 1993. Among direct foreign investment, two-thirds come from Taiwan, Hongkong, and Macao which is also called Overseas Chinese investment, while a quarter is from Western developed countries. Combined, these two investing groups account for 90 percent of the total foreign investment. However, because of differences in cultural background and economy from investment scale to emphases and management styles, the two groups have their own characteristics. Most of the Overseas Chinese investments are small- and medium-sized labor intensive businesses located largely in southeastern coastal provinces for cheap production costs. They are operated by family-based management teams. Western developed countries are interested in China’s tremendous market. Many large companies invest capital- and technology-intensive projects. These companies emphasize long-term interests and consider the infrastructure, industrial environment, and qualified personnel as their investment basis. They are mainly located in large industrial cities and managed strictly by advanced techniques. Some of these foreign invested business have become the pillars of the industry in China. Both groups not only promote China’s economic reform, but also impact traditional Chinese society. Bureaucratic machinery, absence of a detailed and stable set of foreign investment laws, insufficient infrastructure, etc., which have been ignored for a long time, now become serious problems threatening foreign businessmen. Meanwhile, foreign invested businesses also bring some new problems. An unsafe working environment is the most serious problem in the Overseas Chinese invested factories. Considering the important roles of these two investment groups, I chose to study the distinct features they have. My thesis explores the development of foreign invested business in China, compares the differences of the two groups in investment fields, management styles, problems faced and issues raised, and analyzes the grounds created these \u27 differences. My thesis will also discuss the improvement of an investment environment and the trends of foreign investment in China