Foreign direct investment (FDI) is a way to bring goods and services to the international market. Both the supplier of capital and the host country benefit from FDI. China’s FDI has increased in the past few years. Here are the factors that have driven investment in China.
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1. Capital availability
In FDI an outside investor will place capital in a local region. The economic environment and the global capital market play important roles in finding out about FDI flow in China. It has a thriving capital market, economy and business environment that attracts investors to invest here.
China and India have same investment capital. But China has better resource availability, infrastructure, workforce skills, productivity, etc. These make China better than India for FDI. The transaction cost is low in China, so the investors can make more profit.
3. Regulatory Environment
Regulatory environment can either encourage or discourage FDI. If there are too many regulations that it will prevent entrepreneurial activities as managers and employees need to spend more time in maintaining the regulations. In China, the regulations are favorable for FDI. So, the investment is more.
4. Local Chinese market and business climate
The most attractive thing about China is the size of the market. Enterprises can sell to a huge market in China. This makes China a good destination for FDI.
Foreign investment is the key to improving the economic condition of China. The factors just discussed place China at a favorable spot for foreign direct investment.