Determinants of foreign direct investment choice in Chinese Automotive industry : How Swedish firms invest in Chinese market?

Since China entered WTO, the multinational corporations (MNC) increased the foreign direct investment (FDI) in Chinese market because China is famous for its huge market volume and low labor cost. However, the knowledge of Chinese market is still limited. This paper analyses the determinants of automotive MNC's FDI choice made in Chinese market based on the study of Chinese FDI environment and the investment behavior of Swedish firms. The determinants are tested through three variables: industry development, cultural distance and the government policy. In this thesis, data related to FDI in automotive industry is collected mainly from 13 provinces or municipalities. The results show that: (1) The regions with larger market size will attract more FDI; (2) The larger cultural distance will create more obstacles when MNCs invest, thus has the negative impacts on FDI choices; (3) MNCs will give priority to those areas with lower tax burden. Besides, this thesis also describes the detailed cultural distance at firm level between China and Sweden based on the interview with a Swedish firm. The results suggest Swedish firms need to focus more on the partner selection and management adaption when investing in Chinese market.