Essay on The Causes and Future of Taiwan and Hong Kong's FDI in Mainland China

Essay on The Causes and Future of Taiwan and Hong Kong's FDI in Mainland China

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From 1979-2000, China pursued a policy this promoted FDI related to export promotion, which contributed to Taiwan and Hong Kong investment, because it helped it helped protect China’s local businesses. Market driven FDI, which is primarily what the US, EU and Japan are interested in investing, was limited in China because it would potentially hurt Chinese firms due to intense competition from western firms (Naughton, 403). The “western” firms were less interested in investing in China for export purposes, but rather wanted to take advantage of the massive market for consumer products present in China (Zhang, 294). Because of this, Taiwan and Hong Kong investment contributed a larger amount to FDI in China than compared with the US, EU and Japan.
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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Chien, Shiuh-Shen, and Litao Zhao. "Local Economic Transition in China: A Perspective on
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Naughton, Barry. "Foreign Investment." The Chinese economy: transitions and growth.
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Zhang, Kevin Honglin. "Why does so much FDI from Hong Kong and Taiwan go to Mainland
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