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The IUP Journal of Managerial Economics :
The Determinants of Foreign Direct Investment in China : A Survey
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The increasing trend of Foreign Direct Investment (FDI) in China has made it attractive and lucrative. China's main attraction is its huge market, workforce, resources and liberalization of trade by the state government. The study, therefore, aims to identify the key determinants of FDI in China. The three main factors identified through the Analytic Hierarchy Process (AHP) approach, are political, economic and cultural factors and their sub-factors . Further detailed analyses were done through development of hypothesis and weighted priority technique. Results indicate that political factors are most important followed by economic and cultural factors. Considering the importance and priorities of each factor, recommendations are made to Government of China, and also to the current and prospective investors. The policy makers have to implement consistent policies and be able to respond flexibly to potential investors, through continuous improvement of policies, and establishment of research institutes. In addition, it is recommended to the investors to make periodic risk assessment, to understand the market conditions and policies and to develop `guanxi' with the respective parties. Flexibility of both government and investors are thus crucial to ensure success of FDI in China. Ultimately, it could ensure a higher degree of success, if substantial attention is given to fulfill the requirements of each of the key success factors, while investing in China.

Globalization of business activities is unavoidable in this dynamic era. Firms operate as if the world were one large market, which has become possible due to the advancement of technology and transfer of information and knowledge across the globe. The borderless business world requires firms to ignore the superficial regional and national differences. Levitt (1983) argues that firms that do not adapt to the new global realities will become victims of those that do. Globalization has increased international production and foreign direct investment.

Foreign direct investment in China has increased over the past few decades and this has made China attractive to foreign investors. China's relationship with Western business is now entering into a more matured, sophisticated and challenging phase. Furthermore, the fast-changing and high-risk environment has made it a necessity for companies to venture into China, otherwise they might lose out to their international rivals.

 
 
 

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