There are several reasons for a given company not to invest in a foreign country, i.e. inadequate domestic market, economic system, government policy, infrastructure, supply of skilled labour, and so on. Therefore, very often the location advantages of a country are simply too few to attract foreign investors.

However, this rule clearly does not apply to the Chinese case. What makes China such a desired place for foreign investments?

1. Relocation overseas to Third World production sites is often the result of rising domestic costs (especially wages costs). This factor is crucially important for export oriented FDI. Currency appreciation together with higher levels of rents and labour costs in the home country can cause a loss of international competitiveness, and China’s labour intensive market compensates that.

2. Taxation reasons. China encourages special incentives of low taxes and subsidized infrastructure. China has signed a tax treaty with a few countries in order to avoid double taxation. In addition, a preferential taxation policy is applicable for investment in China’s development zones.

3. Availability of locally established component suppliers is extremely important for foreign investors. China is very experienced in manufacturing, hence finding suitable local suppliers and establishing links with these entities is relatively simple compare to other Third World Countries.

4. There is an existing and growing domestic market in China.

5. China’s political and social situation is very stable.

In conclusion, despite the cautious approach of multi national companies to undertake business ventures and inflow of FDI in China, the motivations and reasons to invest in China are of a great number, and foreign companies are now moving ahead at full steam to capitalize on China’s fast growing market and more investor friendly environment.