Discussion Paper

China’s Foreign Investment

Abstract: Foreign investment into China has surged since the 1990s and become a topic of keen interest for both scholars and the media. While China has encouraged this investment with the goal of catching up technologically, close analysis reveals that only a small share of its foreign investment comes from the United States and other nations with the technology China seeks. Instead, inward foreign direct investment flows predominantly from Hong Kong and a few Caribbean nations. Two key factors behind this: China?s tax policy toward foreign investment and its ?industrial? policies to encourage development and growth. Specifically, preferential tax treatment for foreign investment leads many Chinese businesses and households to ?round-trip? investments; and policies requiring joint ventures between Chinese and foreign high-tech companies?while benefiting China enormously?discourage investment by multinationals from advanced countries.

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Economic Policy Paper

Publication Date: 2016-07-26

Number: 16-9