Page 175 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes 13. Third conference in Seattle, Washington in ………....………….
14. Sixth WTO Conference Ministerial was held in Hong Kong From ………………….

15. The third pillar of WTO policies that negatively affect developing countries is the whole issue
of ………………...

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Case Study Business in china

rom 1949 to 1979 China had a nearly autarkic economy and prohibited foreign
investment and restricted foreign trade. Although its brand of communism stressed
Fisolationism, China’s policy also reflected its historical belief that contact with
foreigners tended to corrupt its politics and harm its culture. However, fearing that it
was falling farther behind other countries economically, China enacted the Law on Joint
Ventures using Chinese and Foreign Investment in 1979. Since then, China has experienced
a dramatic rise in FDI. It has become the largest recip ient of FDI among all developing
countries, and since 1993, it has ranked second to the United States for FDI inflows among
all countries. By mid-2002, total FDI in China had exceeded $700 billion and was invested in
nearly 400,000 ventures. Japan, Taiwan, and the United States are China’s most important
sources of FDI.
While China steadily adopted the principles of free trade, it modified its practical aspects.
As a rule, China restricted imports and foreign companies found FDI to be a more realistic
way to serve the Chinese market. Moreover, while China let foreign investors propose their
preferred mode of entry, it applied stringent criteria through an extensive review process.
Specifically, the Chinese Ministry of Foreign Trade and Economic Cooperation (MOFTEC)
or provincial-level authorities with jurisdiction over certain types of investments reviewed
each foreign investment application to determine whether the investment was in the best
interest of China—i.e., whether it helped capital formation, promoted exports, created
jobs or transferred technology. Chinese officials negotiated with each potential investor
to try to improve its potential contributions. The Chinese rejected many proposals that
offered insufficient benefits. Foreign companies would endure protracted negotiations
(often spanning several years) with Chinese companies and provincial authorities before
presenting an application to MOFTEC. The growth of FDI in China in the face of the
laborious entry process testified to companies’ desire to operate in China. Multinational
Enterprises MNEs coveted China’s market for several reasons, including:
1. Market potential: China has about 1.3 billion inhabitants. A Monsanto spokesperson
summed up this allure by stating, “You just can’t look at a market that size and not·
believe that eventually a lot of goods are going to be sold there. One aspirin tablet a
day to each of those guys, and that is a lot of aspirin.”

2. Market performance: China’s purchasing power has been increasing because of its
strong economic growth. This growth has translated into the consumer spending on
necessity and luxury products. Economists project that China will soon be the largest
economy in the world as measured by its purchasing power.
3. Infrastructure: China is in the process of spending more than $1 trillion on
infrastructure projects, including dams, power plants, subway systems, highways
and railroads.
4. Resources: China has an immense pool of inexpensive and productive labour as well
as rich supplies of petroleum and minerals.
Contd...

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