The policies framed by the government in China have been established in such a way over the last three decades that the regulatory framework has been viewed favorably by foreign investors in China. The government has set up separate laws by classifying the foreign investors into categories like wholly-owned foreign enterprises, a joint venture of the foreign enterprises and the Chinese entities and Sino-foreign co-operatives. The People Republic of China maintained a Guiding Directory for investors who are looking for foreign investments in China. The policies framed by the government offer provisions for incentives in case of foreign investments in the special economic zones as designated by the People’ s Republic of China.
Although in the initial stages, the People’ s Republic of China had imposed performance requirements for the foreign investors, the policies on foreign direct investments were instituted with an object to provide preferential treatments to the foreign investors who invested in the economy of China. The regulatory framework offered provisions for incentives, subsidies to foreign investors belonging to different industries. The preferential treatment was provided to the foreign investors according to the relaxations made available to the different sectors in the regulatory framework.
The difference in treatment in favor of foreign investors was noticeable in comparison to the domestic industries of China (Long, 2004, p. 4). The exposure of the domestic industries to the foreign competition due to the increase of foreign direct investments led to the development of the domestic industries as they had to increase their productivity, quality at a competitive price with respect to the foreign investors. This led to the improvement of the industrial climate of China with the technological advancements, transfer of knowledge on business processes resulting in increased production volume in the economy.
This has been largely due to the huge inflow of foreign direct investments that have been catalyzed by the policies of economic reforms and setting up favorable laws for foreign direct investments.
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