China’s Policies on FDI: Review and Evaluation

Foreign direct investment (FDI) has been one of the most discussed topics in the drive for economic globalization. Multinational corporations (MNCs) consider FDI an important means to reorganize their production activities across borders, in accordance with their corporate strategies and the competitive advantages of host countries. Host countries regard inflow of FDI as a significant opportunity for integrating their economies into the global market and promoting their economic development. To maximize FDI’s benefits in economic development, host country governments employ a variety of policies and measures. Performance requirements might serve as an important policy tool in this regard, since they help enhance the benefits brought along by, and address those concerns in relation to, FDI inflow. However, the effectiveness of performance requirements still remains a controversial issue: A number of developing countries believe that performance requirements require foreign-invested enterprises’ (FIE) compliance with host countries’ development objectives, while critics, especially those hailing from developed countries, question their effectiveness. Though some performance requirements were called off after China’s accession to the World Trade Organization (WTO), certain voluntary performance requirements remain. Since 1993, China has been boasting the largest amount of FDI inflow of all developing countries, with about 90 percent of it brought in by green12