China's Foreign Investment
Foreign investment into China has surged since the 1990s and become a topic of keen interest for both scholars and the media. While China has encouraged this investment with the goal of catching up technologically, close analysis reveals that only a small share of its foreign investment comes from the United States and other nations with the technology China seeks. Instead, inward foreign direct investment flows predominantly from Hong Kong and a few Caribbean nations. Two key factors behind this: China's tax policy toward foreign investment and its "industrial" policies to encourage development and growth. Specifically, preferential tax treatment for foreign investment leads many Chinese businesses and households to "round trip" investments; and policies requiring joint ventures between Chinese and foreign high tech companies while benefiting China enormously discourage investment by multinationals from advanced countries.