A risky investment on a poor governance environment
It is widely believed that a country with weak laws and severe corruptions would not attract foreign investors. However, statistic shows the opposite way. Most investors would choose complete governance on their indirect investment but when it comes to direct investments, foreigners would prefer to invest in countries that have poor legal system. A poor governance environment attracts foreign direct investment because it has vast market opportunities.
China is perceived and known for its poor governance structure. But despite its poor legal system and rampant corruption, she has still been able to attract huge amounts of foreign direct investment. "In fact, China is one of the largest recipients of foreign direct investment among the world and it's threatening to overtake the number one position from the United States." (Pg. 297). Based on relation-based governance system in China, investors rely on private information and personal networks to conduct business. Whoever knowing and understanding how to use relation-based governance and knowing all the high authorities people will benefits tremendously in their business investments. For instance, in 1992, McDonalds signed a 20-year lease with the Beijing municipal government to open a restaurant in the prime location. But only two years later in 1994, the Beijing government told McDonalds to move out of the area. It is because a well-connected businessman, Li Ka-Shing from Hong Kong, wanted to build an office-shopping-residential complex on the same site. Li Ka-Shing has been a close friend of Chinese officials and somehow persuaded the Beijing government to hold the prime location for his investment. This case was brought to the court by McDo ...