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How Will Beijing Olympics Impact Foreign Direct Investment

Since 1978, China has been opening its doors ever wider to the global community. Changes in the willingness of the Chinese political leadership have opened their country to a massive influx from countries across the globe. Though not abandoning the basic concepts of socialistic political control completely, China has made it easier for foreign companies to both establish a presence in China, and thrive in their emerging quasi-capitalist economy.

For decades China has tightly controlled access not only to its people, but also to its wealth of resources and markets. Private ownership of large corporations was unheard of and all markets were closely watched over and protected by the People's Republic of China (PRC) leadership. Gradually, beginning in 1978, China has slowly opened its borders to foreign direct investment, creating Special Economic Zones (SPEZS) with the limited freedom to conduct international economic relations. This was quickly followed by further expansion in 1986 with the creation of a more beneficial environment for foreign investors, including lower fees for labor and rent, tax rebates for exporters and more favorable capabilities for currency exchange. This was then followed in 1992 by a movement to establish what has been termed a "socialist market economy" , which was designed to further encourage foreign investment not only through joint ventures with local Chinese companies, but also through the establishment of wholly owned foreign enterprises. By 2004 this resulted in foreign direct investments in China of over $50 billion annually.

Despite loosening the belt somewhat, China is still very much a controlled society. The PRC central government still controls ownership of its primary infrastructures supporting industry and commerce. The government still restricts movement of goods within China. Even within its own borders there really is no such thing as free trade with, automobiles made in one part of the country not even being sold freely in other parts of the country.

The information technology industry has been specifically hindered by policies set forth by the Chinese government. While encouraging the development of an internet infrastructure, regulations released in January 2000 prohibiting the on-line transmission of 'state secrets' have served as a near equivalent to the 'Patriot Act' in the Unidet states and are used as a useful catchall for limiting internet content available to its citizens. Issues related to software piracy and a lack of government diligence in upholding copyright standards has also kept many software companies from entering Chinese markets.

While opening itself to foreign investment, China has not completely thrown the doors wide open, until now. With the opening of the Olympic Games in Beijing recently, the world's eyes have once again fallen upon the Peoples Republic of China. How this will impact the flow of capital investments into China once the games are over will be determined shortly. Most recently the Chinese government has been cautiously allowing outside firms to enter their markets while maintaining both political and cultural control over its population. They seem to want to be able to have the advantages of participating in a global economy, but still want to be able to control just what aspects of it they allow. Will this be possible now that Pandora's Box has been opened for all of the world to see? 

About the Author

James Stephenson is a Business Consultant with over 25 year of experience helping organizations with their Information Technology and Strategic Business alignment resource needs.

He can be reached through his websites and blogs at: http://www.scc-i.com http://www.ctrinformationmarketing.com