Home Home
Home | Overview | B-Schools | Jobs | Alerts | Advertise | Contact Us | About Us | Forum | Link to us
Saturday, December 15, 2018 Choose Language: English | German | Portugese

MBA Resources
MBA Articles
MBA Books
MBA Case Studies
MBA B Schools
MBA Current Affairs
MBA Downloads
MBA Events
MBA Notifications
MBA Jobs
MBA Job Consultants
MBA News
MBA Results
MBA Courses
MBA Sample Papers
MBA Interview
MBA Training
CAT - 2015 - 2016
Online CAT 15 - 2016
About Online CAT
How to Prepare for
CAT 2018 Faqs
GD Tips
Pursuing MBA
MBA aspirants
What is an MBA
Why an MBA
How to Prepare for MBA
Returning to B-school
Value of MBA
Good MBA Candidate
MBA Overview
MBA Accreditation
Scope of MBA
MBA Programs
Career in Vogue
B-School Ratings
Top Universities
Top 30 Ranking
Admission Process
Management Colleges
in Bangalore
Distance & Online
MBA Preparation
Aptitude Tests
Tips for CAT
GD Made Easy
MBA Entrance Exams
CAT's Eye
About CAT
CAT Class Room
CAT Course Materials
CAT Bulletin 2018
CAT Eligibility
CAT Test Centers
CAT Institutes
How to Apply
Important Dates
CAT Instructions
Sample Papers
CAT Resources
CAT Results
MBA Careers
Business News
Case Studies
Interview Tips
Build Resume
Seminar Topics
Business Schools
B-Schools Profiles
B-Schools Rankings
B-Schools Selection
B-Schools Hot News
B-Schools Events
B-Schools Diary
B-Schools Seminars
Placements 2015
Placements 2014
Placements 2013
Placements 2012
Placements 2011
Placements 2010
Placements 2009
Placements 2008
Placements 2007
Placements 2006
Top Business Schools
Top Business Schools
(Part Time) in Asia
Top Business Schools
in India
Top Business Schools
Education Loans
Career Resource
Admission Process
Admission Alerts
MBA Admissions
Application Dates
Full Time
Part/Evening Time Programmes
Fellow Programmes
Executive MBA
Distance Courses
GMAT Preparation
What's GMAT
GMAT Books
Eligibility Fees
GMAT Preparations
GMAT Review
MAT Preparation
What's MAT
Exam Notification
Online MAT 2015 - 16
MAT Institutes
MAT Test Centres
AIMA Study Centres
Bank of Baroda
JMET Preparation
JMET 2018 Important
JMET 2018 Eligibility
JMET Application
JMET Online Application
JMET Results and Score
JMET 2018
Participating Institutes
JMET Test Pattern
JMET Paper Structure
Analysis Zone
Analysis of MBA
Entrance Exams
Exam Notification
Mock Exams
Mock Exam [2018]
Verbal Preparation
Math (Quantitative)
General Awareness
Free Downloads
Karnataka CET Papers
CAT Papers
GMAT Verbal
Distance Courses
Success Stories
Advertise With Us
MBA Forum

Home » MBA Articles » MBA - Retail Management Articles » Foreign Direct Investment By The Expatriate To India - Lesson From The Chinese Story

Foreign Direct Investment By The Expatriate To India - Lesson From The Chinese Story

CLICK HERE : Expert Suggestions on Computer Based CAT : 2018 - 2019


One story that has occupied business headlines for
sometime now is the bizarre billions that seemed to be flowing into
China as foreign direct investment. In 2004 alone, China received US
$60.3 billion in FDI. India, the next most
popular destination FDI, received a paltry US $5.3
billion. The yawning gap in figures is of course standard and well
known. What's interesting is the fact that a significant chunk of this
FDI comes not from multinational
corporations in US or Europe but from overseas Chinese
located in the Hong Kong, Macau and Taiwan. While this may seem like a
"secret of success" to many, there is more to it than meets the eye.
There is ample literature (presented
in this paper) that indicates that the improbably high
ratio of investment by overseas Chinese to investment by multinational
corporations maybe more about obstacles faced by MNCs rather than any
systematic offering to attract Non
Resident Chinese investment. Socio-culturally, the
Chinese were an insular society where familiarity with language and
'ways of the land' mattered. Also, what is counted as FDI, is often
domestic capital making its way through
nearby countries to exploit the preferential tax
treatment. Such kind of round tripping capital, completely nullifies one
of the most important aspect of FDI – transfer of technological and
managerial know-how.

Further, emerging trends indicate that investment by the
overseas Chinese may have been an anomaly that will get rationalized
over time. From a share of 80% in 1992, the overseas component averaged
out to 60% and is expected to
further go down over the next few years. Also as China
becomes less of a black box, multinational corporations would, as they
are already, rush to the China Opportunity. Already, 400 of the Fortune
500 companies are present in

is no theory or literature that suggests that Non Resident investment
is fundamentally better (or 'stable&apos than investment by MNCs. Instead
we should be looking at a larger context. The lesson from china
is that ideology should be kept separate from business,
red tape should be snipped, and infrastructure ramped up. A general
investment climate is necessary to encourage investment – MNC or Non


China-FDI story has been in the limelight for some time now. The
bucketful of billions that the world seems to be pouring down the dragon
definitely makes good copy. No other country attracts
as much foreign direct investment (FDI) as China does.
Last year some US $60 billion poured in, about twelve times the amount
that flowed into India. Between 1979 (the first year of the China
Economic system reform) and 2004, China
absorbed a total of about US $560 billion in FDI1. India, the next most popular destination for foreign investment in manufacturing2 received almost US $200 billion less in FDI than China.

Source: UNCTAD World Investment Report (2001), RBI Annual Report, various Issues, ISI Emerging

is only fair to add here that Chinese data is often seen as a bloated
one while India's are understated. India FDI statistics exclude
reinvested earnings, subordinated debt, and overseas
commercial borrowings (included in FDI calculations of
other countries).

Including these would take India's FDI figure to US $8 billion (1.7% of GDP). At the same time, much of
(about half) FDI inflows to China is 'round tripping'3. Therefore, honest FDI is about US $20 billion only (2% of GDP)4. The way China calculates its FDI has also been questioned and there are discrepancies
between investment figures reported by investing countries and those reported by China5 (Chart).

*Only top 10 economies (France, Germany, Hong Kong, Japan, Malaysia, Netherlands, Thailand,

what remains a fact is that China attracts, overall, more FDI than
India and has benefited
immensely in terms of employment and growth. In 1979,
when China kicked off its reform process, India was not too far behind.
The quantum leaps it has made since then has been attributed largely to
non debt-creating, less volatile form of investment
which transfers not just money but also managerial and technological

Exports have been directly impacted, with China
exporting 4.152 times more in 2000 than in 1978 and per capita GDP
growing by 3.8 times. FDI has also created more jobs for the Chinese.
1993-1999, when FDI really shot up, China added about 20
million jobs. Corresponding figures for India are starkly deficient

Selected Economic Indicators




China               India

China                       India

GDP Per Capita (Constant US $)





Exports of Good (in pc of own GDP)





Net FDI Inflows (in pc of own GDP)





Total Investment (in pc of own GDP)





Source: Tseng & Zebregs (2002)

A substantial portion of the FDI to China comes from
overseas Chinese living in arc of Pacific Rim. And therein lies an
interesting aspect of the China-FDI story. The foreign investment boom
in China was started by the
overseas Chinese
. From 1985 to 1996, two-thirds of
foreign investment in China came from HongKong, Macau, and Taiwan. There
China has some 30 million ethnic Chinese, many of them with close ties
to the mainland6.

phenomenon has had economists and Indians in a tizzy. How can we get
our NRIs to invest here? Where are we losing out? Why are the overseas
Chinese stealing a march over us? What are the lessons for us?


This paper looks at this phenomenon from scratch,
evaluating whether overseas Chinese investment is indeed the book that
India should be taking a leaf out of. It also contextualizes overseas
investment by tracing its origins and motivations. In
later parts it also looks at evolving trends and the role of MNCs and
comments on the implications of extreme ratios of non resident
investment to MNC investments.

The Dragon Who returned home: Fable of the Overseas Chinese

opened its doors to FDI with the passage of 'Law of People's Republic
of China on Joint Ventures
Using Chinese and Foreign Investment' in 1979. Due to
China's chequered history, MNCs were quite tentative about China in the
first 10 years of reform. Year 1980 saw only $596 million in investment7.

Foreigners were not sure of the long term implications
of Chinese reform. Most were not willing to make major equity
investments and those who wanted to participate in the Chinese market
chose to do so
by licensing their technology to Chinese companies or by
product imports8. During this time, most of the 'foreign
investment' came from overseas Chinese. This Chinese Diaspora pioneered
growth with labour intensive manufacture in Taiwan, Hong
Kong and Singapore and once wages rose sharply they relocated these
manufacturing operations to mainland China when the economy was
opening up in 1980's bringing with it the huge volumes
of FDI that the country is now known for9. As of the end of 1992, Hong Kong investors had brought in US $10 billion, starting 25000 factories in
Guangdong alone, while the Taiwanese made an estimated 6000 investments worth US $4 billion10.

Fable or Fib: Putting it in context

On the face of it, investments by overseas Chinese, is
somewhat of a Chinese triumph. Indians often respond by blaming NRIs for
not having enough 'heart' while the government goes out and puts up an
annual jamboree called the 'Pravasiya Bharatiya Diwas'
intended to show off India and attract NRI investment.

However, there is reason to believe that the
disproportionately high ratio of overseas FDI to total FDI may be more
to do with MNC shyness and hesitation to invest in China in the early
days than anything
else. In fact, some studies have found that foreign
industrial investors faced specific obstacles when entering China's
economy. China's industrial infrastructure and administration were
relatively backward
as a result of its underdevelopment which was mainly
caused by the country's self exclusion from the world economy before

Also the economy had communist remnants from China's
planned economic system, including the 'family register' labour system,
the collectivization programme and the large but dysfunctional
Also, local managers were unfamiliar with so called
western or international managerial techniques or reluctant to adopt
them. Corruption was rampant and opportunistic individuals were hoping
to take
advantage of their positions for personal profit and
gain from foreign countries.

What added to the discomfort of the multinationals was a perception that the Chinese not only prefer
to do business with other ethnic Chinese but also dislike
doing business with non-Chinese. In China, who you know is important
and ancestral connection go a long way towards gaining local

were the main reasons why overseas Chinese capitalists penetrated
China's market more quickly than any other economic agent in the period

Profit or Patriotism

Also, there seems to be an aura of 'noble' and 'patriot'
around the investing overseas Chinese. This may stem from the
narratives that the Chinese government churns out. Sample this:-

The Chinese government sincerely welcomes overseas
Chinese to participate in the country's construction and promote trade
and economic co-operation between China and the countries they live in" –
Chinese vice Premier Wu Yi

pronouncements systematically aid the image of a group whose intentions
may be highly deviant from those attributed to them. The implication is
a public-private partnership (nexus?) of a different
kind altogether. It would be naοve to believe that the
overseas Chinese invest in China because they are patriotic. In 'Flexible Citizenship', Aihwa
Ong, author, talks about "opportunists and parvenus who
are eager to enrich themselves while incidentally
benefiting China." The official view is that in practice one cannot
count on the loyalty of overseas Chinese, only on their desire to make a
profit off China.
This seems to be a well accepted view. Andrea Louie in
her book 'Chinese Across Borders: Renegotiating Chinese identities in
China & US' points out that "Overseas Chinese often return from
Taiwan and HongKong, to invest in China primarily for
profit, without any charitable motivations. Such a person may invest in a
particular region for reasons more out of convenience than sentiment."

All FDI is good FDI?

Overseas Chinese capital wouldn't have been invested in China unless the policies chosen made it advantageous for them to do so15
. A significant amount of Hong Kong money flowing into
China is not foreign capital but round tripping domestic capital –

money routed by mainland companies through joint
ventures set up to obtain preferential tax treatment offered to foreign
investors in China16. Many of
the Hong Kong investments may represent fronts for
Taiwanese who cannot legally invest directly in China. According to the
UNCTAD World Investment Report 2003, round tripping could be as much as
US $15-20 billion.

FDI in China is guilty of more that just round tripping. Often,
expatriate-invested firms
produce exports by seizing control of export-oriented
businesses from indigenous Chinese. Two ratios tell the story. One is
the export/GDP ratio, which rose from 15% in 1990 to 20% in 1999, an
increase of
5%. The other is the share of exports by foreign firms
of total Chinese exports: this rose from 15% to almost 40% during the
same period. So, foreign firms may create exports for China, but they
also divert
a big slice of the export pie away from indigenous
Chinese entrepreneurs17.

also indicates a fundamental failing of the Chinese financial system.
The inefficient SOEs (State
Owned Enterprises) crowd out investments for local
entrepreneurs. Expatriate money then becomes the only source for
business expansion making them sell out cheap. This investment is
predominantly just
an input of money without the concomitant
managerial/technical know how transfer.

Emerging Trends

While the share of overseas Chinese investment has
traditionally been high, it is interesting to see it come down over the
years. From 80% in 1992, it averaged out to about 60% over the decade.
It is
expected to further go down by another 10% by 201018.
And while China attracts investment from its expatriates, it also, at
the same time, attracts 80% of the Fortune 500 Companies.

joining the WTO in 2001, China has made significant commitments. These
range from opening
sectors that were hitherto closed to foreign investment,
raising caps on sectors that already allow FDI, to improving the
general investment climate. China joined the TRIMs19 and TRIPS20, which would
provide more favorable/equitable treatment to foreign investment21.

Lessons for India

The learning in the China story is not about blindly comparing how China generates so much more
investment from the expatriate Chinese community compared to what India is able to generate from NRIs.

first lesson is to rationally understand why China is the favored
destination of investment for
Chinese businessmen and individuals particularly in
Asia. Overseas Chinese are more in number, tend to be more
entrepreneurial, enjoy family connections in China and have the interest
and capability to
invest in China – and when they do, they receive red
carpet treatment. Overseas Indians are fewer, more a professional group
and, unlike the Chinese, often lack the family network connections and
financial resources to invest in India22.

also needs to take heed of the fact that the Chinese has created a
hospitable environment for
investment – non resident or otherwise. China not only
offers a low wage rate (one third of Mexico; one fifteenth of the US),
but a largely literate population (85% literacy rate of the population
above 15
years), a disciplined labour market, a stable exchange
rate in dollars with infrastructural facilities and tax incentives for
foreign enterprises.

should try and take a leaf out of the Chinese ability to separate
politics from business. China,
once known for its red tape and bureaucratic wrangles,
has acted nimbly when it has come to foreign investment. India still
remains caught up in a warp. A simple setting up of a restaurant
requires 38 clearances23
. The number shoots up when it comes to factories and
bigger capital investments. While China despite its famed shyness of
anything foreign has opened up, India still remains mired in political
debates on caps on foreign investment.

is however important to note that things are changing and
recommendation to remove sectoral caps
for FDI by the NK Singh report on foreign investment is
being seriously taken. Government will also need to learn to resolve
political ideology and pragmatic economic considerations like
privatization (currently
on the backburner) as it is a huge driver of FDI.


it is interesting to note that China's treasure trove of foreign direct
investment comes mainly
from overseas Chinese we must recognize that this may be
manifestation of negatives in the system rather than another China
stamped way of manufacturing success. Further, there is no literature or

theory to support the premise that non resident
investment is fundamentally more 'stable' than investment by
multinational corporations. If anything, MNC investment typically comes
with significantly
superior managerial and technological know-how and is
thus to be more preferred. Non resident Indians can be counted more
among the professionals than entrepreneurs. So while it may not have
been able
to put in as much FDI as its Chinese counterparts who
are businessmen, if convinced about the Indian story, they can
dramatically boost FDI in India through their corporations. And this
investment may
truly be the key to unlocking India's potential as the
most favoured investment decision. What India needs to learn from China
is how to go about ramping up the infrastructure, lose the red tape and
create an environment conducive to investment. Rest is
just statistics.


1. 'The Dragon Millennium: Chinese Business in the coming world economy' by Frank Jurgen Richter

2. 'China Business'
by Edward Hinkelman & Christine Genzberger
3. 'State Collaboration and development strategies in China' by Alexius Pereira
4. 'Agrarian Questions – Essays in Appreciation

5. 'Flexible Citizenship'
by Aihwa Ong
6. 'Chinese Across Borders: Renegotiating Chinese identities in China & US' by Andrea Louie
7. Project Syndicate, China
8. UNCTAD World Investment Report, 2003

9. A report on Foreign Investment by the NK Singh Commission, 2002
10. 'The Insidious Charm of foreign investment', The Economist, 2005, Vol. 347, Issue 8416
11. 'Foreign Direct Investment & Exports',
James Gordon, September, 2002
12. 'The Role of Foreign Direct Investment in China's post-1978 Economic Development', Chen C, Chang I, Zhang L., 1995
13. '
Multinational Companies and Foreign Direct Investment in China and India',
Bajpai N and Dasgupta N., 2004
14. 'Why Overseas Chinese dominate China's Exports', Yasheng Huang, June 2001
15. '
China's role in the world economy',
Dr. Song Hong, July 2005
16. F&D Magazine
17. The Economist, various issues
18. Business World, various issues
19. RBI Bulletin and Annual Report, various  issues

20. imf.org
21. planningcommission.nic.in
22. pbc.gov.cn
23. fdimagazine.com

Latest MBA - Retail Management Articles
1 2 3 4 Next

Discussion Center



Feedback/ Suggestion

Yahoo Groups

Sirfdosti Groups

Contact Us



Get MBA FAQS, JOBS, Questions & Answers

  • B-Schools Profiles
  • MBA Programs
  • MBA Walkins
  • Internet Marketing Interview Questions
  • Sales Interview Questions
  • Share Market Interview Questions
  • Strategic Marketing Interview Questions
  • Telemarketing Interview Questions
    Members Login Here!

      Forgot Password?
      New User? Register!
    XAT 2019
    XAT Notification Date
    XAT Registration 2019 Procedure
    XAT Exam Pattern
    XAT Sample Papers
    XAT Previous Year Papers
    SNAP 2019
    SNAP Notification Date
    SNAP Registration 2019 Procedure
    SNAP Exam Pattern
    SNAP Previous Year Papers
    TISS 2019
    TISS Notification Date
    TISS Registration 2019 Procedure
    TISS Exam Pattern
    Computer Based Test Practice link

    Interview Q & A eBook

    Get 9,000+ Interview Questions & Answers in an eBook. Interview Question & Answer Guide
    • 9,000+ Interview Questions
    • All Questions Answered
    • 5 FREE Bonuses
    • Free Upgrades

    Useful Resources

    Indian Institute of Management - Ahmedabad

    Indian Institute of Management -  Bangalore

    Indian Institute of Management - Calcutta

    Indian Institute of Management - Indore

    Indian Institute of Management - Kozhikode

    Indian Institute of Management - Lucknow

  • Master of Business Administration MBA course Exam Institution Admission Details Related Pages

    CAT | IIM | JET JMET | MBA | MBA Entrance | MBA Distance | MBA Entrance Exam | MBA Programs | Top MBA Universities in India | B-Schools Profiles | Management Colleges in Bangalore | Aptitude Tests | CAT Tips | CAT Bulletin 2008 | Common Admission Test | CAT Papers | XAT Papers | FMS Papers | MAT Papers | IIFT Papers | CET Papers | SNAP Papers | JMET Papers | GMAT Verbal Papers | GMAT Math Papers |

    Copyright © 2018. onestopmba.com. All rights reserved Privacy Policy | About Us | Terms and Conditions
    Our Portals : Academic Tutorials | Best eBooksworld | Beyond Stats | City Details | Interview Questions | Discussions World | Excellent Mobiles | Free Bangalore | Give Me The Code | Gog Logo | Indian Free Ads | Jobs Assist | New Interview Questions | One Stop FAQs | One Stop GATE | One Stop GATE | One Stop GRE | One Stop IAS | One Stop MBA | One Stop SAP | One Stop Testing | Webhosting in India | Dedicated Server in India | Free Website Templates | Sirf Dosti | Source Codes World | Tasty Food | Tech Archive | Testing Interview Questions | Tests World | The Galz | Lalu Yadav Jokes | Vyom | Vyom eBooks | Vyom International | Vyom Links | Vyoms | Vyom World | Shayari