Understandably, the geographic proximity of Taiwan and Hong Kong to China also contributed to the large amount of FDI. Still, there are barriers to trade that could inhibit the desirability of investing in China, such as tariffs and transportation costs. But, the tariffs are usually offset for Taiwan and Hong Kong firms because of China’s policy of tariff-credit for export oriented FDI, of which most Taiwan and Hong Kong FDI is (Zhang, 305). Additionally, the low shipping costs, due to Hong Kong and Taiwan’s proximity to Mainland China and various Special Economic Zones, make any of these added costs relatively negligible.
Taiwan and Hong Kong pursued massive amount of investment in China because of policies that encouraged FDI for exports, the massive supply in labor and geographic proximity but China sought after investment from Taiwan and Hong Kong for different reasons. Though China was interested in promotion of exports like Taiwan and Hong Kong, it was also interested in p...
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