It was in the year 2002 that China surpassed US and became the world leading destination for foreign investment. The year 2002 is significant since there was an overall decline in the FDI investments across the world by nearly 25%, China was able to attract FDI. For a span of twenty years, dating from 1979-1999, China received nearly 10% of the worlds direct

investment and 30% of the investment amount slotted for developing countries. The Chinese reserves have continued to swell even in the coming years. It managed to draw nearly $60.3 bn in 2005 and $60.6 bn in 2004. Foreign investment in China has already grown by 6.4% in the first quarter of 2006 to $14 bn. China continues to attract more FDI than any other developing country.

China continued to still receive FDI investment even when Asia was going through its worst economic and financial crisis in the years 1997-98. It comes as no surprise that some of the investment meant for the South-east Asian economies was redirected to China, thus bringing about a fear of slowdown in overall FDI investment in these economies.

Taking into consideration its economic size and late entry into the world of FDI investment, its comes as a marvel that Chinas FDI stocks are already in line with UNCTAD estimates of a developing countrys average. In reality the same are actually even higher than the global average of 22%. China offers two major attraction to any global player; low cost labour and a huge domestic market of 1.2 bn people. That is practically the reason why all major global players want to set up their base in China.

However, all these investments have not come overnight, but rather the Chinese government took a number of steps which the enhanced the speed of FDI investment in the country. It was in the years 1979-983, that the Chine government established four SEZs in the Guangdong and Fujian provinces, offering special benefits for setting up shop in these SEZs. All major FDI investment was limited to only these provinces in the initial years with an average inflow amount of USD $ 360 mn annually. A further booster in the FDI inflow came in the year 1984 when the Chinese government opened another 10 provinces for FDI investment. The average FDI inflow rose from USD $ 360 mn annually from previous years to now being USD $ 2.1 bn annually. However, a major impetus in the foreign funds could be felt in the year 1992, when the Chinese government made a series of new policies and procedures for welcoming FDI inflow into the country and a nation-wide approach to implementing FDI policies was adopted.

Benefits of foreign investment in China can be gauged by the fact that Shanghai, worlds 5th largest city having a population of over 22 mn people, had buildings of less than seven floors in 1992 and today it boasts of having 2500 skyscrapers. The rules of investing in China are not the easiest to follow due to red-tapism and bureaucracy, however, if followed word by word they can still make investing in China a lot more easier.

Chinese Govt has issued a number of laws and statutes promoting the establishment, day to day operations, shutting down and selling of foreign owned enterprises. Broadly classifying as three major ways in which foreign firms can invest in China, namely, equity joint venture enterprises, contractual joint venture enterprises and wholly owned enterprises. Besides this, a foreign company can set up as many branches as they want unless guided by a specific sub-sector or section of a specific law. Having representative offices or liasoning offices are permitted, as long as they dont indulge in profit making. A foreign funded company can only operate as a limited company or a company limited by shares in China. The same are governed by the following laws and statutes:

1. The Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures

2. The Law of the People's Republic of China on Chinese-Foreign Contractual Joint Ventures

3. The Law of the People's Republic of China on Wholly Foreign-Owned Enterprises

The above provide the legal basis on which a foreign owned company can operate and protect itself in the Peoples Republic of China from both domestic and international interests. Depending upon the kind of investment done, the same can be classified further into the following four categories; encouraged, permitted, restricted or prohibited investment.

However, in keeping with the framework and guidelines set by WTO, the Chinese Government in the last two-three years has brought about relevant changes in the above laws and has removed/modified the irrelevant and redundant sections of the above laws. Many laws have been amended to accommodate much higher percentage of foreign investment in industries such as telecommunication, legal services, real estate, advertising etc. In addition, industries like retailing, warehousing, wholesale distribution, logistics, banking and insurance have been opened to minority stakes by the foreign partner. Thus, a whole new range of industries have been included in the acceptable list of areas in which a foreign partner can operate.

However, as with all fairy tales, even in China, FDI operations are not as smooth as they are perceived to be, foreign firms have to face a number of severe regulations. They have to achieve industrial policy goals as well as meet performance requirements. In order to protect the local industry, the area of operation of foreign firms is well defined. Despite the faade created of equal opportunities for all players, the level playing field is not always fair and equal; hence, it creates an environment of long term economic and political instability.

Despite all the red-tapism, bureaucracy and the dual nature adopted by the Chinese government, China still remains a hot destination with the global investors and continues to attract maximum investment in the developing countries and is second only to US world-wide.