The People’s Republic of China was established in 1949, after the communist revolution and under the leadership of Mao, their economy was based on the Soviet model. Furthermore, China decided to cut all ties from the capitalist world and close its economy completely, a decision that would lead to its emergence as one of the greatest economies in the world.
After closing off its economy, China had to fall back on domestic resources, the main aim of the time was to establish “a state-owned heavy industries sector from the capital accumulated from agriculture.’’ Due to a shortage of foreign exchange, China was unable to import the necessary technology and equipment which was flourishing in the world market and had to turn to domestic goods for substitution. With the assurance of employment and social welfare to all the citizens the pace of China’s development would surpass any developed country’s pace of growth with respect to education and health care.
However, agricultural production did not produce enough surplus to fund the heavy industries sector and China faced a crisis similar to USSR, (just before the disintegration) with low per capita income and minimal industrial growth. Then, in 1972 China ended its economic isolation and established a relationship with the United States of America and under the leadership of Premier Zhou Enlai and Deng Xiaoping the “open door policy’’ was implemented with the privatisation of agriculture followed by privatisation of industry and the establishment of Special Economic Zones.
China, currently is not just the leading destination for FDI but also a leading investor in the global economy. In 2016, Chinese companies were responsible for about $183 billion of FDI, a UNCTAD report states. China has investments by the billions in countries like Myanmar, Russia, Canada, USA and Singapore.
However, China’s inbound Foreign Direct Investment (FDI) is trudging upwards and is likely to depict a downward trend, when corrected for inflation, in the time to follow despite declaration of steady growth. According to a report by World Bank, FDI in 2010 accounted for 4 percent of China’s GDP which fell sharply to 1.5 percent in 2016. One can observe how China is ensuring a significant fall in the impact of FDI on its economy.