Fdi In China

Introduction

In this world, investment and trading is very essential for its progress of globalisation in the economy activities and this has creates many foreign investment in the market. Thus, it can defined foreign direct investment is a direct investment that involves another country or firms to set up a branch, joint ventures or subsidiary in another country. (Dicken 2004) Besides, it has fabricated four primary motivations for FDI that are market seeking, resource seeking, efficiency seeking and strategic asset seeking. (Eden 2001) Hence, this has encouraged foreign investment to increase and to gain mutual benefits between countries. The boom in FDI from some developing and transition economies also reflects on the increasing competition of many firms in general. Firms have realized the growing importance of accessing international markets and connecting it to knowledge networks and global productions (UNCTAD 2007). In addition, the FDI surge has also been fuelled by export revenues which have built up the financial strength needed to engage in overseas investment (UNCTAD 2007).

Country Background

Singapore

Republic of Singapore or known as Singapore is an island that has become one of the world's most prosperous countries with strong trading links with most of the countries. Singapore achieved its independence in 1965 and since then the government has played an active role to welcome foreign investments in the country (The Heritage Foundation and The Wall Street Journal 2007). Government does play a vital role in the economic and making Singapore the best place to start, grow and globalize businesses. With this, it will assist the country to develop or urban agglomeration that may lead to higher income, increase of living standard, higher degree of specialization among industries and increase the contribution to export (Tuan and Ng 2004). Singapore has retained its positions as the three largest recipients of FDI in Asia region. (UNCTAD 2007) Besides, there is a growing trend in cross-border mergers and acquisitions (M&As) among the ASEAN region that were partly derived by the increasing commodity prices and encourage more investment flows to the country (UNCTAD 2007).

China

The People's Republic of China also known as China is one of the fastest developing countries in this world. The speed of economy of China developed around 8% to 11% every year. (People's daily online, 2006) China also has the largest population. Through their huge populations, China has the cheapest labor forces and it is also considered to be one of the countries that would invite potential foreign direct investors. In the past decade, China has been the second largest foreign direct investment (FDI) recipient destination in the world, after the Unite States. (OECD, 2000) Launched in 1978, China's "open door policy" constituted a unique and vast laboratory for the study of major structural changes in China and the world economy. Since then, foreign direct investment has become an important source for China's investment in fixed assets. According to the statistics of 2007, from January to February 2007, the top ten nations and region with direct investment in China are Hong Kong, Virgin Island, Japan, South Korea, Singapore, United States of America, Mauritius, Cayman Islands, West Samoa and Taiwan Province, total of which accounted for 86.66% of total actual use of foreign investment in the country.

Reasons for choosing Singapore:

Singapore, push to become Switzerland of Asia, has been rated as the 'World's easiest place to do business' and taking its advantage of having high literacy, good infrastructure, safe environment, enforceable laws, high connectivity and cultural diversity will encourage Singapore to be one of the world 's top trading nation (Yap 2006; International Enterprise Singapore 2007; Tan 2007 ). Besides it has become a most cost-competitive place for business in the global business (Refer to Appendix for more Singapore rankings). The extensive air, sea and IT links provide the infrastructure for seamless and efficient flow of goods and services from Singapore to global markets (Economic Development Board 2006). Singapore, attracted a record of SGD5.4 billions in foreign investments in 2006, has restructured its economy to ride the wave of globalization and its initial phase was to restructure manufacturing sector, but now is more on restructuring service sector and push itself as an educational and medical hub (Chow 2007; TODAY 2007). In first quarter 2007, Singapore's economic has a favourable outlook and with the economic and political stability will encourage more foreign companies especially manufacturing and financial service based companies will put Singapore into considerations to further expand their investment (Singapore Department of Statistics 2007). Nevertheless, barring external factors, the Singapore economy is expected to be supported by strong fundamentals, namely sharp growth in the FDI.

Reasons for choosing China:

China has been the one of countries which had successfully attracted FDI since 1979's Chinese open door policy to FDI and majority has implement Greenfield strategy to enter the country. In the past twenty years, the Chinese government has adopted various policies to attract foreign investors into the Chinese economic. Those policies enabled China to become the largest FDI recipient destination country in past years. Since its opening, China has favored FDI, especially export-oriented FDI, rather than domestic firms (Buckley forthcoming; IMF 2002). Such policies not only attracted FDI but led to round-tripping through funds channeled by domestic Chinese firms into Hong Kong (China), reinvested in China to avoid regulatory restrictions or obtain privileges given to foreign investors. In 2006, China's economic was $69.5 billion from FDI and in first quarter 2007, it has reached $15.9 billion. (National Bureau of Statistics of China 2007; Hong and Ding 2007) As one of the most successful countries in attracting FDI, the experience of absorption in foreign investment could be learned by many other developing countries. For instance, the Chinese government has circumvent tax for those foreign companies that invested more than USD10 million for the first two years and pay only 50% of their total tax in three years