Adapting to a New Chinese Environment: The Case of Foreign Invested Enterprises in China

Abstract

After undergoing economic reform for more than two decades, China’s GDP is growing around 10% annually and has been moving forward in rapid steps to becoming the world’s next economic giant. Its attraction to foreign investment has also kept in a strong momentum. Being faced with a vast market with tremendous potential, more and more foreign companies and investors are considering whether and how to translate this potential growth into gains and get the lion’s share. In terms of the number and scale, foreign invested enterprises (FIEs) have been expanding rapidly. Up to 2006, there are 594,000 registered FIEs in China with US$700 billion assets.1 They hire 28 million Chinese employees, which is one tenth of the total non-agricultural population. Meanwhile, most of the investors who have taken the plunge in China have gained great returns. In 2006, 21.1% of the taxes collected nationwide was from the FIEs, and the average return of the mutual fund that invests in China has increased about 15% over the past three years.