China's "Open Door Policy" officially began in 1979. This policy has attempted to transform China's economy from a central planned economy to a socialist market economy. This change not only effects China's economic development, but it also seriously challenges the traditional system in legal, political and administrative environments. Consequently, these changing environments strongly influence the management of foreign investment in this market.
In order to understand the major problem associated with FDI, five Taiwanese enterprises operating in China were selected and interviewed to provide necessary background information. As a result of these accumulated experiences, this report carried out further studies in the area of an investment model, the investment environment, the management of the shortage of hard currency, human resource management, political risk and the case study of a Taiwanese-Chinese joint venture in the hospitality industry.
The major lesson learnt from these studies revealed that the development of an investment strategy in China must take into account the complex issues of the nature of the investment industry, the corporative Government relationships, the selection of partners, and the awareness of changes in national and regional control. This paper will assist foreign investors planning to set up an effective business network in China to manage the problems of FDI. In addition, this report also highlights that setting up a business network also increases the cost of FDI in China. Ignorance of the complicated investment environment behind the original investment motivation (such up taking advantage of cheap labour and potential market) will cause the conflicts and difficulties with the development of FDI in China's market.