Foreign direct investment in China has grown gradually each year since the Chinese Government adopted policies that would attract foreign investors in the late 1970s. Direct foreign investment is somehow a type of financing different sectors in a country’s economy by investment companies that are located outside the specific country’s territory.

Investment companies can become foreign direct investors if they acquire at least 10% of the voting power of an enterprise. Direct foreign investment can take several forms. In some countries, foreign investment is made by incorporating subsidiaries or other wholly-owned companies, by acquiring shares in an associated enterprise or by merging or acquisition of a completely different company. Another popular form of foreign direct investment is joint ventures with other investors or companies.

Foreign direct investment

Theoretically, foreign direct investment has the purpose to stimulate the economy and to promote sustainable development. In reality, the effects of this type of investment can be destructive for a specific country’s economy. And there we have India’s example. When it came to foreign direct investment India adopted restrictive policies in some sectors such as retail. The Indian Government considered that excessive foreign investment in the retail sector would lead to a severe destabilization of the overall economy of the country by reducing the number of employees in the specific sector which is also the second-largest employment area in India. This would have also lead to the depression of the income of those working in the largest employment sector of the country, agriculture.

But still, foreign investment has its advantages and disadvantages. A country with many stakeholders is a country that proved to be politically and economically stable enough to attract foreign investors and these countries usually look good in the eyes of the international community. On the other hand, it seems that many investment companies prefer investing in rich countries through mergers and acquisitions mainly due to the decreased risks. However, those that invest in developing countries are facing greater risks but also in case the project proves to be a success the profit will be much bigger. Thus, most of the investment companies are first considering the risks when deciding to invest in a country.