China's Economic Reform

China’s expansion in trade is accompanied by the increase of FDI and growing trade by foreign invested enterprises. (Fung, 2002) Contribution of FDI has increased dramatically since the early 1980s, especially in the 1990s. During 1980 and 1985, trade by FDI constituted less than 0.6% of total export and 2.1% of total import. The shares went up to 7.3% and 12.8% respectively in the second half of 1980s. In

One of the important factors of the growth in China and Brazil as BRIC countries is Foreign Direct Investment (FDI). There are several factors that contribute to attract FDI including market size, institutional and regulatory quality, trade openness, infrastructure quality, economic and political stability, and labor quality and cost (The World Bank, 2011). China is still the most attracting for FDI among any other BRIC members (UNCTAD, 2012). Huge amount of market, low inflation and stability of their government are might be the factors that attracted the FDI in China. According to the ministry of China, “Investment from the United States decreased by 26.1 percent in 2011 to $3 billion, while that from the European Union decreased by 3.65 percent to $6.3 billion” so, China’s FDI was hit by the global financial crisis in the EU and US. However, The most attracted FDI in Brazil is in market size sector with the fact that Brazil will be the host of

Figure 5.22-3 China FDI Growth 1984-2004 Figure 5.3 Major Players and their relationship in China’s Car Industry

China’s recent rapid economic growth has astounded countries around the world, including the U.S. Domestic policies that improved incentives for economic competitiveness were one of the main reasons that China was so successful in increasing its Gross Domestic Product (GDP). “The combination of Chinese land and labor with the capital and expertise of Taiwan and Hong Kong industrialists provided a particularly important boost to exports and employment during the first decade of reform.” China attracted investments from multi-national corporations, which further contributed to China’s revival as a great trading nation.

The next strength which is related to the high population is, that China provides both a qualified and executing workforce to the labour market. Furthermore, we can say that relative cheap labour costs remains attractive for foreign investors despite their rapid growth. Investors should remain wary of this fact. Two-thirds of European companies are still achieving a positive return from their business activities in China. There is still a trend for countries to invest more in China, as it is still classified as an emerging nation. In conclusion, it is still attractive for manufacturers to outsource their production to China in order to take advantage of their relatively low labour rates, lowering their variable costs and thus boosting profits.

I found this article "Foreign direct investment: Companies rush in with the cash" on the financial times website (www.FT.com) published December 11, 2002 written by John Thornhill. The reason for choosing this article is my personal interest in the Chinese economy and its attractiveness to the foreign investors. Apart from the foreign direct investment this topic has also helped me in understanding the impact of Chinese economy on the global market.

Zhang portrays that the export levels in China rose as a result of the expansion of multinational corporations. This suggests that as exports are a component of aggregate demand as exports rise aggregate demand rises meaning China 's economy is growing in theory. This is supported by Sun (2002) by showing the macroeconomic impacts that FDI induces. He recognises that FDI influences trade flow as he sees that China 's total trade volume relative to GDP rose from 15.2 percent in 1980 to 26.8 percent in 1995. The more coastal you go the more influential the foreign direct investment contribution becomes.. Sun concludes that FDI is a form of trade creating in China. Chen (1999) ran cross-sectional regressions on 29 provinces in different years and confirmed that FDI does positively impact upon both promoting China 's host province total trade flows with the rest of the world and on increasing bilateral trade flows between China and its trade partners. The journal raises the idea of FDI and technological advancement promoting economic growth to be inconclusive. Naughton (1996) highlights a number of factors that limited the impact of FDI on China 's domestic economy. He states that the FDI was distributed provincially especially in Guandong who prosper from investment coming in from Hong Kong. Secondly, up to 1991 most of the output of FIEs was exported meaning that the foreign firms that were present gave no significance; foreign investment also never went above one

Peter J. Buckley, Jeremy Clegg and Chengqi Wang (April 2006), “Inward FDI and host country productivity: evidence from China’s electronics industry”, Transnational Corporations, 15 (1), pp. 13-37 [Online] Available at: http://unctad.org/en/docs/iteiit20061a2_en.pdf (Accessed on 13 November 2012)

The research this material accounts for mainly focuses on the pros and cons of FDI regarding corporations more than host countries, like what are the factors that attract multinational’s investment, what are the risk of expropriation, the extent of the development of stock markets, and what is the linkage between democracy and foreign investment (Bekaert, Harvey, & Lundblad, 2011; Busse & Hefeker, 2007; Eichengreen et al., 2011; Li, 2009). Indeed, this specific research tells little about the host countries in this international flux of investment rather than distinguishing between developed and less-developed countries (LDCs).

two countries will be evaluated and also with the help of thorough literature review the advantages and disadvantages of FDI in India and China will be expressed. 2. Research Question The main research questions of this study are:  What are the advantages and disadvantages of FDI in China?  What are the advantages and disadvantages of FDI in India? The entire research work has been done for the successful answering of the above mentioned research question. 3. Methodology Methodology is always the most

Between 1999 and 2001 there were many different forms of FIEs entering China’s market. As shown on the following page in Table A.1., adapted from a research study conducted by Amiti, Mary and Beata Smarzynska Javorcki, foreign manufacturing industries were the majority of entrants into the market. All of these companies had to enter as a joint venture with a local because it was the only way to enter the market as a foreigner before China entered the WTO, which is discussed later in this paper. The western industries came in

From 1979-2000, China pursued a policy this promoted FDI related to export promotion, which contributed to Taiwan and Hong Kong investment, because it helped it helped protect China’s local businesses. Market driven FDI, which is primarily what the US, EU and Japan are interested in investing, was limited in China because it would potentially hurt Chinese firms due to intense competition from western firms (Naughton, 403). The “western” firms were less interested in investing in China for export purposes, but rather wanted to take advantage of the massive market for consumer products present in China (Zhang, 294). Because of this, Taiwan and Hong Kong investment contributed a larger amount to FDI in China than compared with the US, EU

According to MOFCOM statistics, the biggest direct investment destinations from China to the EU were Luxemburg, France and the UK.

In recent years, the investment scales of foreign business are increasing stably. In 2001, the foreign direct investment was 46.8 billion dollars. In 2005, it has arrived at 85.5 billion dollars. At the same time, the form and field has changed diversification. With the China economy high speed developing and enlarging the industry field, the foreign investment will related to communication equipment, computer, bank service, insurance service, etc. so it will also increase for a long time.

The present study is descriptive in nature based on secondary data collected through newspapers, magazines, research papers and various publications of government, to analyze the issues and prospects of FDI in one of the most significant sectors of Indian economy.