ABSTRACT
Introduction Foreign investments have contributed significantly to China’s economic growth since 1979 when China began its open door policy and economic transformation. Foreign investments in China have been encouraged through the provision of tax break, preferential tariff and favoured financial support. For example, the State Administration of Taxation announced that from January 1 of 2000 foreign-funded businesses in western and central provinces would enjoy a preferential 15 per cent rate of income tax for three years (most domestic companies pay a 33 per cent income tax). Foreign companies making high-density fertilizer, stainless steel and micro-electronics products across the country would also enjoy the 15 per cent tax rate. “By encouraging foreign investment, the government aimed to reduce the deficiency of foreign funds, introduce foreign advanced technology and modern managerial expertise, upgrade the industrial structure, develop and extend international trade, and optimize the export mix” (Hao, 1999, p. 291). Over the last two decades, there has been a steady improvement in the country’s investment environment and foreign investments have been on an increasing trend as shown in Table 11.1. Foreign investment attracted to China is generally in the form of direct investment.1 The most adopted forms of foreign direct investment (FDI) in China are Sino-foreign joint ventures (also referred to as Sino-foreign equity joint ventures), Sino-foreign cooperative ventures, wholly foreign-owned ventures and cooperative exploitation.
