Discuss about the impacts of FDI on chinese economy” discuss in term of FDI impacts to chinese environment.
The foreign direct investment is known as an investment of a foreign company from another geographic location (host country)into the home country through the licensing, strategic partnerships, exporting or franchising. The FDI provides a platform for the overseas firms to globalize the businesses through the cross-border transactions for enhancing global market share and sales volumes, revenues, and profits. At present, China is the second largest economy in the world and the biggest economy in Asia that has the highest GDP among the developing nations because of the world’s second top contributor to the FDI. It majorly contributes to the global economic growth because of the second largest percentage of share for the FDI flows in the world behind the USA (Slide Share, 2018).
China is one of the biggest markets for the foreign investments in the world because the Chinese government supports the FDI Inflows and Outflows to increase the GDP rates, economic growth with low unemployment rates, low interest rates, and low inflation rates. Because of the favorable FDI policies of the Chinese government, China attracted approximately US$139 billion FDI that is the second highest in the world after the USA. The FDI growth in China was recorded more than 10% in the duration of Dec.2010 (US$124) – March 2018 US$139 billion. China acquired US$ 37 billion (equal to 227.54 billion Yuan) FDIin Q1, 2018 at the increased FDI rates of 0.5% with the foreign investment by approximately new14340 foreign firms to trade in China(The Economic Times, 2018). This report discusses the impact of the foreign direct investment on the Chinese economic environment, shaped from the FDI inflows in China from the foreign investments and Outflows from the investment of the Chinese firms into the foreign markets.
China FDI is termed as an accumulated foreign investment in the Chinese domestic companies in the manufacturing and service sectors for supporting the economic growth in China by utilizing the foreign capital or FDI funds. The Chinese economy has grown at the rapid pace in the last twenty-eight years since the 1990s because of the tremendous growth in the trade Inflows in China from the outside investment and trade outflows by investing into the other markets by the Chinese global exporting firms. China is one of the largest developing host nations in the world for the foreign investments that attracted 139 billion US dollars foreign investments in December 2017 with 37 billion record FDI in the first quarter of 2018 from 124 billion US dollars in December 2010 and only 37.48 billion US dollars in the year 2000 (Focus Economies, 2018). The period of 2000-2010 showed a huge growth of FDI in China because of the exponential investment growth after the 2000s.
China is a top recipient of the FDI among all developing nations to promote the economic growth, GDP and employment growth, wealth maximization, industrial development, and global corporate identity. Hong Kong is the major contributor to FDI inflows in China (69.0% in 2016), it also includes FDI stocks from Singapore (5.0%), Macao (3.0%), South Korea (3.0%), Japan (3.0%), the USA (3.0%), Germany (2.0%), UK (2.0%), and Luxembourg (1.0%) in 2016. It accounts the FDI inflows from Manufacturing (43.2%), Real Estate (20.9%), Business Services and Renting (6.2%), Wholesale and retail businesses (5.7%), and Telecommunications, Transportation, storage, and postal services (2.0%) in 2016 (Fogel, 2016). The high-tech sector FDI rose 12.8% in 2017 and accounted for 19.3% of total FDI. FDI inwards in China rose almost 15% from 123.9 in Dec. 2013 to 139 in Dec. 2017.
In the first quarter of 2018, China accounted 0.5% growth in the FDI inflows and reaching the figure of 227.54 billion Yuan (US$ 37 billion) worth. China received almost US$122 billion in the first 11 months of 2017. Currently, the total FDI (inward and outward) was recorded US$ 286.78 in April 2018, decrease from US$ 345.1 in March 2018 and increase from US$120.74 in January 2018. The FDI was recorded the highest of all times in China in December 2017 with the net worth of US$ 1310.35 because of the significant amount of investment by the Chinese Company into the outside markets around the globe(Fetscherin, Voss, and Gugler, 2010). China’s total Outward flow continually has grown after the 2000s. It was recorded US$145.7 billion in 2015. It is projected to continually rise at the rapid rates because of the increasing investment by the global Chinese firms into other markets outside of China for the globalization of their business models.
The FDI in China is determined by the factors, like geographic locations, tax rates, labor market conditions, unemployment rates, infrastructural support of the government, technological know-how, and availability of the production technologies and R&D facilities. The Chinese government majorly attracts the foreign investors for allowing them to trade directly through the foreign investments into China by the global automakers and other manufacturing industries as well as retailing supermarkets (Ali and Guo, 2005). The Chinese business environment has many attractions for the FDI, like the world’s largest population base, improved labor market conditions with lower laborrates, lower material costs, availability of research facilities, laboratories, and technical know-how operations are such major attractions for attracting the foreign investments into the high-growth potential conditions in China with their significant capital funds. The government support procedure and infrastructural support in China can provide growth opportunities to new investors to increase their global market share through the significant Chinese investments.
The economic policies, like tax concessions, currency devaluation, and open doors policy favor the economic development and growth by making the FDI inbound operations more attractive to overseas firms (Zhang, 2011). The market liberalization policies, like low tariffs, reduction of trade regulations and barriers, and investment protection and IP secured rights have enabled the large access to FDI from the foreign firms into China. Additionally, the low political risks and fewer possibilities of terrorist attacks, stable environment with low economic uncertainties, industrial infrastructure, technological advantage and know-how, and skilled and technical labors, are such attractions to more FDI inflows in comparison to other developing nations in the world. But, the factors, like the legal uncertainties, the lack of transparency and openness to foreign trade, bureaucratic and administrative system, FDI protectionism policies, corruptions and protection measures, and lower level of protection of IP rights are such barriers to FDI that promote only local businesses in China(Wei, and Xiao, 2014).
The foreign capitals contribute to the national economic growth in China by creating a favorable business environment with the growth in service sectors and increasing numbers of the manufacturing industries. The FDI in China has contributed developingthe growth opportunities by creating new employment and income opportunities through the establishment of the foreign business investment. The Chinese economy grows fast and the investment environment is continuously improving rapidly through the foreign capitals or funds (Dr. Zilibotti, 2009).
China is the second largest economy where the FDI inflows and outflows have greatly contributed to the industrial sector growth (manufacturing and service sector), Gross Domestic Product (%) growth, and increasing employment with lower unemployment rates. Because of the large amount of FDI flows (the world’s second highest FDI flows in Dec. 2017), the GDP has increased at the rate of 6.8% in the first Quarter (1 January- 31 March 2018). The GDP growth was mainly supported by the major investments, a large amount of exports, and solid consumption. Because of FDI wars with the USA, the Chinese government is projected to GDP growth at 6.5% at the end of the year 2018(Buckley, Clegg, and Wang, 2002).
Due to the transition of China to the market-based economy through the foreign investments, privatization of the businesses and deregulation of the most of trades, the GDP share of China rose from 2% in 1998 to 14.9% in 2016 that is growth by 3.4% from the year 2012. The FDI contributed to the national economic growth and GDP by an average increase of 30% annually from 2013-2016 in China. Because of the high FDI flows, China reached at the second position in the world economies with the figure of US$ 12,015 billion for the GDP in 2017 after the USA (US$ 19,391 billion). It is projected to reach or cross the estimated figure of 20.0% by the end of 2025 (Dr. Agrawal and Mohd. Khan, 2011).
FDI in China has accounted for 2.0% of the national gross capital in 2010 as the foreign investment enterprises have distributed/ supplied almost 0.5% of the fixed asset investment. The foreign invested enterprises (FIEs) are accountable for almost 51% of its import and almost 49% of its export as the contribution of FDI in the form of net exports is about 2%. The FIEs largely contribute to the inbound (imports) and outbound (exports) operations in China. The FIEs account for more than 20% of total sales, employment, and value-added opportunities in the industrial sector of China (Ma, 2009).
The FIEs, like manufacturing industries for telecommunication and electronic equipment (computer, laptops, mobiles, tablets, and smart TVs), automotive vehicles (like hybrid cars, classic cars, electronic cars, and hydrogen cars), transport sectors, postal services, retailing supermarkets, and other foreign businesses are making significant investments into China. Since observing the industrial sector accounting for approximately 50% of China’s GDP in the previous few years, the industrial IEEs have contributed almost 10% of the total GDP of China through the investment operations in China.
The Foreign inbound operation by the FIEs have also contributed to the growth of the economic activity in China through the global supply chains with the rising flow of goods and services to meet the growing customers’ needs, expectations, and demands (King and Mallesons, 2018). For example, the Global Vehicle Automakers, like Volkswagen, Suzuki, Nissan, Toyota, Honda, Audi, and others have been operating their businesses with different designs and varieties of vehicles through the FDI operations in the form of direct exports, authorized dealers or franchised distributors to grow the income of the local Chinese firms as well as the employment opportunities.
The retailing supermarkets, like Wal-Mart (the USA), RT-Mart (Taiwan), Carrefour China Inc. (France), Tesco (the UK), Metro Cash and carry (Germany), Lotte Mart China (Taiwan) and FMCG companies, like Nestle, Unilever, and others have been investing their business operations into Chinese locations from past few decades through the supermarkets, hypermarkets, express stores, franchised stores, or dealers’ showrooms that in turn has created new job offerings to the local residents of China and business opportunities to the local firms or groups of China(Fetscherin, Voss, and Gugler, 2010). The influence of the physical investments by the FIEs in the service sector brought to about 33% of China’s GDP and almost 27% employment in China. The investment of almost US$ 135 billion by FIEs has contributed to almost US$ 3.7 trillion in the Chinese GDP.
The foreign investments from the foreign institutional investors or global enterprises have dramatically changed the Chinese economic environment by supporting the growth of GDP share, government revenue, employment, and local Chinese business growth. It has contributed to the government revenue reserves through the foreign investment taxes, tariffs, and earnings from the foreign firms, employment creation with new recruitmentoffers to the local Chinese employees, and new income generation to local small firms through the franchised opportunities for the franchised contracts with the global business enterprises (Shane, 2018).
The FDI inflows from the FIEs have contributed improving the labor market conditions by providing new jobs to the Chinese individuals for handling different business operations across the Chinese markets. It has reduced the unemployment rates by 25-30% of total unemployment rates (3.89% in March 2018) by increasing the ratio for the employed persons at different job positions in the industrial sectors (manufacturing or service sectors). The FIEs account for 20% of GDP by employing only 3% of local Chinese workforces (KPMG, 2018). The FDI operations have brought the economic reforms in the Chinese economy, like diversification of the ownership structures, establishing market-oriented enterprises, reforms in the structure of state-owned enterprises, and improving the competition level by reducing the monopolies of the local brands.
Due to the government support of China and liberalization policies, China has become more accessible place to the foreign investors for achieving the huge growth in their revenues, profits, and market share in a short span of time because of favorable conditions and high purchasing power of the customers here (The Telegraph, 2018). The Ministry of Commerce says that the Chinese Government has reduced the restrictions or regulatory barriers on the market access by the foreign investors because of contributing to the national economic development and employment sector growth. The Chinese President, Xi Jinping has allowed the increased access to the FDI by expanding the scope, concept, structure, layout, and system for the FDI. Jinping has continued to shift FDI focus for attracting the huge foreign investments from the high-end manufacturing, technological services, and green industries to sustain or promote the growth of the national economy(Tilburg University, 2013).
FengYaoxiang (The Chinese Spokesperson for China Council for the Global Trade)says that the global companies from the developed nations, like the USA, the UK, Japan, and Germany have noticed the changing attitude and trends for the FDI led to more willingness of the Chinese people to invest into science, technology, engineering, research and development for the high-tech manufacturing and service sector growth. The national government of China is looking to evolve the Chinese economy through more market access to bring more opportunities to local businesses and employment through the foreign inbound operations. The energy, agricultural, technology, manufacturing and services, telecommunications, chemical industry, and environment are such industries where are the lots of growth for the FIEs (Tiehang, 2018).
Conclusion
The FDI plays a major role in booming the Chinese economy by contributing the industrial growth, service sector growth, new employment and income generation opportunities, wealth maximization, and government high revenue reserves. China is the biggest developing nation in the world where the Chinese government supports and promotes both FDI outflows and FDI inflows to contribute toward the high economic growth with the increased percentage of GDP, high employment and currency valuation in the global markets.
China is at the second top position after the USA in the list of the highest growing economies because of the second biggest contributor to the global economic growth. Since the years 2000s, the FDI growth has placed at a rapid pace because of the increased investments with the increasing number of foreign firms into China markets as well as promoting the export of the Chinese goods and services to other countries at the global scale. After looking the exponential growth for the FDI, the Chinese FDI market is projected to reach at the top position in the world in the next 30 years by 2050 because of the major exports of the Chinese goods to the rest of the nations in the world as well as allowing the more investments by the manufacturing and service industries from other countries
References
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