China’s Foreign Investment

Ellen McGrattan

No 16-9, Economic Policy Paper from Federal Reserve Bank of Minneapolis

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.

Pages: 6 pages
Date: 2016-07-26
New Economics Papers: this item is included in nep-cna, nep-cse, nep-int and nep-tra
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