China opened its door to FDI in 1979. The FDI in China on an approved basis leapfrogged to $73 billion in 1996 from $58 billion in 1992. The actual flow spurred from $3-4 billion a year till 1991, to $42 billion in 1996.

But the majority of this FDI in China came from Hong Kong, which cannot be construed as foreign capital. This is because foreign capital from Hong Kong is now regarded as domestic capital after it became a part of China in July 1997. Minus investment from Hong Kong during 1992-96, the FDI in China stood at $181 billion.

But China cannot be said tobe a better place for investment than India from the point of view of future potential destination of foreign investment.

Since over 55 per cent of the FDI come from Hong Kong, the quality level of the investments in the mainland in terms of "operational resources" is at the second grade, compared to the international standard.

Hong Kong's entrepreneurs, who are mostly ethnic Chinese, are predominantly traders and have little expertise in manufacturing and managerial skills, as compared to the entrepreneurs in the west and the US. As a result, the Hong Kong-based firms could contribute little to upgrade the operational resources in China.

The main aim of Hong Kong's investors is to use the mainland as a base for blossoming re-export from Hong Kong. Nearly 80 per cent of Hong Kong's visible exports is accounted by re-exports and 20 per cent is classified as domestically manufactured goods. Much of this re-export originates from Hong Kong-owned firms in the mainland and go to the traditional markets ofthe US and the west.

Correspondingly, Hong Kong accounts for about one-fifth of Chinas global exports every year. Thus, Hong Kong has served as the biggest trader for Chinese goods in the world, and has helped China in boosting its exports in the 90s. About 40-50 per cent of Chinas exports originate in industries having FDI and majority of them are Hong Kong-based companies.

Contrary to this, the FDI in India is largely dominated by the American and European investors.

Unlike in China, India discourages FDI in light industrial goods and small- scale units. In India, FDI was approved mostly in the large-, medium-scale sector, particularly in the core sectors of the economy. Infrastructure alone accounts for about 17 per cent of the FDI approved during August 1991 to March 1998, followed by telecommunications with 19 per cent and oil refinery with 9 per cent.

In view of the large FDI approved in infrastructure and core sectors of the economy, India stands to gain substantially from the inflow ofoperational resources through FDI, which China has failed to garner in proportion to the FDI that flowed into that country. According to an estimate, over 40 per cent of the new capacity approved in power during 1991 to 1996 was having FDI, and the FDI-related power projects have become an important channel for inflow of modern technology in electricity generation.

However, the domestic industries in both India and China have protested against the predominance of foreign investment, which has put a question mark on their survival.

Some Chinese scholars and managers have argued that competition between foreign and local companies can never be positive given the strength of the foreign firms. If the competition was fair and moderate, it might have positive results.

Therefore, even though foreign capital became the spring board for growth in Chinas exports by over 80 per cent during 1992-96, domestically they had to incur a big damage to their industries. In 1996, 31,000 of the 68,000 state-ownedenterprises recorded deficits.

In India, too, the FDI has stifled several domestic industries like soft drinks and home electrical and electronic goods.

But India enjoys an upper hand over China in terms of future political and economical viability for investment. Blessed with a strength of one of the worlds larger technically sound professionals and the second-largest English-speaking nation, India provides more fertility to the foreign investors. Funneling FDI with operational resources, which means inflow of superior technology, manpower skills and marketing strategy, India has more potential to globalise foreign capital than China.