The Entry of FDI in China's Water Industry

Abstract: Since 2002, a new phenomenon has emerged that MNEs (Multinational Enterprises) have invested in China’s Water Industry (CWI), which belongs to the state-owned and monopolized industries with characteristics of low efficiency, low profitability, intensive investment, as well as price limitations. From the view of economic rational law, all capital has the economic nature to pursue the profit maximizing. However, this new phenomenon did not show this economic rationality of capital. It impels our motivation to make a research on the topic. Therefore, the aim of our dissertation is to answer the questions of why, where and how of FDI in China’s Water Industry. Since few existing theories can answer our proposed questions, we adopt the SCP (Structure-Conduct-Performance) approach in Industrial Economics and OLI (Ownership-Location-Internalization) theorem in FDI theories as a deductive base to create a new applicable CIF (Country-Industry-Firm) model, which can be used to answer the questions of why, where and how of FDI in China’s Water Industry. Then, we use a positivistic philosophy to try the newly created model with multiple research methods: a case study and a survey. We focus on a typical and empirical case: Vivendi Water in China. Consequently, we analyze the data in detail. After the empirical research study, we conclude that the Country Factors, Industry Factors and Firm Factors are the main factors which facilitate FDI in China’s Water Industry. They also determine the preferred mode & locations of FDI in this particular field as well.