Oluwafunmilayo Oluduro

The Challenges and Benefits of Foreign Investments in China for a Multinational Corporation Introduction Despite the recent global recession, foreign investment in China reached $119.6b in 2014 according to (KPMGI) (2015). Foreign investment is not only crucial for economic globalization, but also plays a key role in China‟s economic growth. Even with strict regulatory control, Song & Golley (2011) , Dullien (n.d), (KPMGI) (2015) surmise that the presence of multinational corporations (MNC‟s) like Walmart and Microsoft within the country is a testament to her pedigree as the second largest emerging market in the world. Also, (The World Bank 2010) calculations show that, over the last 10 years, China has regularly received 20% of all FDI to developing countries. Overview of FDI in China Foreign direct investment (FDI) became relevant in China‟s economy, only in the last 25 years; due to the 1992 bi-lateral investment treaty with USA, depreciation of the Chinese currency, Dullien (n.d) as well as favourable FDI policies, (Long 2005).Statistics from (Ministry of Commerce, People‟s Republic of China (MOCPRC) 2015) show that in the first half of 2015, the volume of China‟s FDI stands at $76.63b. Trading Economics (2015) records $103.68b for the first ten months, representing 8.6% increase from 2014. The service sector recorded the greatest increase at 19.4%; (KPMGI) (2015) attributes its vibrancy to policy change encouraging export-based manufacturing and emergence of the middle class. Morrison (2015) agrees that this trend will continue as the economic reforms advised in the “The Third Plenum Resolution” further encourages FDI in a wider range of service sectors. Benefits of FDI in China Alongside the geographic and demographic scale of China, several factors apart from cheap labour make investment in China a sound financial opportunity state Carpenter & Dunung (2012). These include: an ageing population, growing wealth amongst the middle class, increased mobility, changing consumer attitudes, industrial restructuring and urbanization, (Pricewaterhouse Coopers 2013). (KPMGI) (2015) notes, the removal of investment barriers to full foreign ownership facilitated by the QFII (Qualified Financial Institutional Investor) program, (Robinson et al. 2013) also improves the stakes. Analysis of China‟s “12th Five Year Plan” shows that strategic opportunities exist in: renewable energy industries, modern agriculture, high-technology, environmental protection industries and high-end manufacturing according to Morrison (2015). Coupled with the trust in foreign skills by locals and the sheer scope of the market, MNC‟s will experience great returns on investment in China. Challenges of FDI in China While the pros for entry into the market are compelling, MNC‟s are likely to witness obstacles such as: socio-cultural differences, sentimental business relations or guanxi, shortage of talented professionals says (Wu 2008). (Pricewaterhouse Coopers 2013) notes that differences in accounting formats, diversified market differences across regional, industry and segmentation lines, China‟s unique market environment are also barriers to entry. Conclusion Projections indicate that FDI will continue to thrive in China. For multinational corporations, success in this market lies in aligning business plans with the “12th Five Year Plan”, understanding the regulatory framework and cultivating sustainable technical relationships locally. 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