Trade friction between China and the U.S. over the past year may be hurting economic growth and

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Trade friction between China and the U.S. over the past year may be hurting economic growth and putting a cloud over investment decisions in the two countries. Yet when it comes to profitability, the news hasn't been all bad for multinational companies doing business in China, according to a report published on Saturday.

Most multinationals get a better return on their investments in China than their global average, the Chinese Academy of International Trade and Economic Cooperation and the China Ministry of Commerce said, citing data from overseas governments and business groups. The report, titled "Multinationals In China: 40 Years of Investment," was released at the Qingdao Multinationals Summit held in the eastern Chinese city of Qingdao yesterday. Some 500 executives attended the gathering.

Citing U.S. Department of Commerce figures, the report said the return on investment, or ROI, for U.S. businesses in China in 2018 was 11.2% compared with a global average return of 8.9% for American companies. Some 40% of European companies also say profit in China is higher than their global average, the report said.

Though better than average, China's profit advantage nevertheless narrowed last year compared with other nations. Last year's ROI of 11.2% for U.S. firms in China declined by 1.3 percentage point from 12.5% in 2017. Meantime, the average global ROI for U.S. companies increased by 1.1 percentage point to 8.9%, suggesting that China may be facing rising competition for foreign investment from rival economies. International business groups such as the American Chamber of Commerce and European Union Chamber of Commerce in China have called on China to reduce preferential treatment in the country for state-owned companies, among other measures, to further improve its competitiveness.

MNCs come to China in search of markets, cost benefits and innovations, the report noted. Though famed for its manufacturing success, some 70% of direct foreign investment is currently in the service sector, the report said. In the first seven months of this year, direct foreign investment in the services industry increased by 9.3% from a year earlier to 371.6 billion yuan, compared with an increase of 2.7% in manufacturing, to 154.8 billion yuan.

The report highlighted case studies of investment by Nestle, Intel, Cargill, Honeywell and Dow Chemical, among others.

Among other foreign companies with business in China, Merck KGaA said on Friday said it would invest $14 million in seed fund targeted at start-ups.

Required:

a. From the above article, interpret why would MNCs desire to engage in direct foreign investment (DFI) in China rather than India?

Justify the country risk barriers may evolved in China and India. Support with proof (if any).