The Determinants of Foreign Direct Investment in China: A Survey

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.