The Impact Of Foreign Direct Investments In China

It is this that has sparked China’s vulnerability to external shocks. In 2011, China’s exports amassed almost $2 trillion, however in Feb 2012, China recorded a $31.5 billion trade deficit as a result of the European sovereign debt crisis in which China’s main trading partners plunged into recession. China’s severe BOGS decrease is an attempt to control growth and a sustained level of 7.5%. Investment policies are also critical for China to achieve economic growth and development. Foreign Direct Investment (FDI) in China is being sought primarily in the redesign of State Owned Enterprises (SOE’s) and in the development of interior provinces. Between 75-80% of World Bank loans to China in 2008 were directed to the central and western regions, the most economically disadvantaged. This promotes increased wealth within China, leading to higher levels of development due to a more positive Human Development Index (HDI), which currently sits at 0.687, up from 0.677 in 2010. Thus, trade and investment are critical factors in ensuring that China’s growth remains sustained at 7.5% whilst still encouraging increases in development.

The benefits brought by FDI to China are apparent. Economy is influenced by FDI in a number of ways. FDI involves transfer knowledge in the host country, which will create an increase on the existing stock of knowledge through labor training, the transfer of skills, and the transferring of new managerial and organizational experience. Also, it can help local corporations to access to advanced technology by capital accumulation in host countries (Mello, 1999 and Mello, 1997). Furthermore, FDI may allow China to develop in technology and knowledge which are not readily available locally, as a consequent increase productivity growth through the economy (Jose, 2003).

2016 is said to be “Record Breaking Year” for Chinese Investors. According to Forbes News, five major acquisitions of U.S companies and stakes totaled up to 28.16 Billion dollars. Yet, this was only a quarter of China’s entire outward investments in 2016. Many foreign firms suppose that China’s oversea merging and investing in next decade will reach tremendous amount, but it will not occur as they expected depending on Emma Johanningsmeier’s current event reports on Wall Street Journal about “New Chinese Regulations and wary foreign governments hamper M&A investors” in august 2017.

FDI is an important element in China’s reform and economic growth, though it is not easy to say the relationship between FDI inflow and the growth empirically.It is widely believed FDI not only brings technological progress, but also having impact on industrial organization, technology transfers and the diffusion of knowledge. It influences on the market structure and competition in host economies as well. In China, there is

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

We have looked at FDI as the first major in our paper because FDI inflows point to a lot of factors that are right (or wrong) with the economy. In our opinion China remains an attractive FDI destination based purely on the fact that the extent of development possible is still large and the development thus far has been highly skewed, both in terms of demography and geography. Thus China’s capacity to absorb funds remains as high as ever, despite questions being raised about the undervalued currency.

5. Žilinskė, Asta. "NEGATIVE AND POSITIVE EFFECTS OF FOREIGN DIRECT INVESTMENT." Economics & Management (August 2010): 332-336. Business Source Complete, EBSCOhost (accessed March 21, 2011).

 FDI exceeding $60 bn p.a.  Outward FDI by Chinese Enterprises over $7 bn in 2006, growing at 26%

FDI grew quickly in the 1990’s. The U.S is the top destination of FDI and China and Brazil are in top five. The reasons for the increased activity were the opening of markets due to trade liberalisation and deregulation, pressure of competition brought about globalisation and technological changes, the importance of size as a factor in creating economies of scale and the desire to strengthen market position.

The Chinese government 's recognition of its two major attractions of low-cost labour and an enormous domestic market of 1.2 billion consumers has further propelled its initiatives toward economic reform such as opening up of markets and reducing tariff levels. As a result, foreign investment has intensified.

Foreign investment in china has been adversely affected by the global economic and financial crisis since 2008. In the first 6 months of the year 2009, foreign investment in china dropped by 17.9%. There has been a notion that china does not well receive foreign investors compared to the past. Reports of abolishment of special treatment for foreign investors have been reported. However we all agree that regulation of foreign investment is important to ensure sanity.

There is growing consensus among researchers and academicians that in this globalized world the burden of private investment is increasing over Foreign Direct Investment (FDI). Because of a declining trend in public investment the task of capital formation rests over the shoulder of private investment and thus FDI playing a leading role in determining the fate of the economy. The economies receiving more inflow of FDI, are realizing a comparatively high growth and vice-versa. This is also expected to be happen in India. The present paper discusses the relationship between the inflow of FDI and GDP. It has been found that FDI has a positive correlation with GDP. the regression analysis between GDP and FDI of different sectors also supported the same result which shows that FDI inflow in India is playing very important role in determining the size of GDP.

The correlation between foreign direct investment (FDI) and economic growth is well documented see (Borensztein, De Gregorio, J-W. Lee 98). Even though there has been an extensive amount of research, which includes both FDI and economic growth, there still seems to be a substantial divide between the results; which are concluded within these papers. To begin in this research paper we will define foreign direct

Yousaf (2008) Analyses of more than 3 decades reveal that FDI has positive relation with imports in short & long-run where as relationship with exports is negative in short & positive in the long-run. FDI is an economic influencer of economy of a country specially developing countries experience accelerated GDP when successful in attracting FDI as in case of Pakistan.