China's Growth in Foreign Direct Investment

Over the past 20 years, China's growth in Foreign Direct Investment has led to a rapid expansion of its economy. China opened up the door to the world economy in 1979 and has experienced an exceptional growth rate since, and that momentum has held steady into the 21st century. Since China's admission to the World Trade organization in 2001 the Republic of China has eased their foreign trade policy which has resulted in a steady increase in Foreign Direct Investment (FDI) (Figure 1). Supported by strong growth and political stability, in 2002 China emerged as the leading nation in the FDI Consumer Confidence Index (Figure 2). Due to decreasing income inequalities, rural-urban migration, and increased demand for consumer goods FDI "Inflows rose 18 percent to $175 billion in 2010, $7 billion above the previous peak in 2008" (Laudicina, Peterson & Gott). Additionally, several factor conditions such as: free trade zones and advance communications combined with supporting industries make China's Special economic zones (SEZ s) a predominant form in which China accesses global capital. SEZs are specific locations in which the Chinese government has eased economic and tax regulatory policies; therein, making them conducive to foreign investors.

Furthermore, many Multinational companies are able to protect profit and gain an economic advantage by using foreign production to lower cost. The promise of low-cost manufacturing remains to be one of the primary reasons companies look to China as a sourcing base. Companies are able to achieve a competitive advantage in China given its rapid growth in the technology and service sectors, growing educated workforce, and improved R&D capabilities which allow higher productivity and a better return on investment in FDI. As China's rural and urban markets continue to grow it will have overlapping demand with many high income countries and companies should capitalize by increasing FDI to