chapter  2
13 Pages

Foreign Direct Investment

Opportunity or Challenge for China After WTO Membership?
ByKevin H. Zhang

China's accession to the World Trade Organization (WTO) in 2001 has created not only opportunities to attract more foreign investors but also potentially dangerous challenges from foreign direct investment (FDI). It is estimated that China could attract about US$100 billion in FDI annually after 2007, due to an increasingly liberalized FDI climate following China's commitment to the WTO and its subsequent rapid economic growth. Few areas in economics arouse as much controversy as does the issue of the impact of FDI on its host economies. The mixed effects of FDI on host economies reflect the fundamental conflicts between multinational corporations and host economies in many areas of interest. FDI may reduce China's foreign-exchange earnings on both current and capital accounts. China's special advantages come from three sources: the huge market, the large number of rich overseas Chinese investors, and the central government's effective FDI strategy and policy.