Foreign Direct Investment in China

Foreign Direct Investment in China2

Introduction2

Overview of the Chinese Foreign Investment3

Factors affecting the Foreign Investments3

Capital Accessibility3

Competitiveness4

Authoritarian Milieu5

Stability6

Recession-Inflation7

Local Chinese Market and Trade Ambiance8

Ingeniousness to Local and International Trade9

Conclusion10

References11

Chinese Market and Foreign Direct Investment

Introduction

Today, foreign investments are helping the developed countries expand their resources and finances in some other countries. Almost all the developed countries are in the race of overshadowing their competitor for capturing larger opportunities for foreign investments. Foreign direct investment is different from portfolio investment. Foreign direct investment or FDI is about investing resources into production and any business oriented activity in a certain country by another country. There are many modes available to carry out FDI like merger and acquisition, constructing new units, re-investing the acquired profits from foreign business activities and dealing intra-company loans. This tool proves to be useful in both the ways that investing country and native country share the benefits (Froot, 2008; OECD, 2002).

FDI requires the support of participative kind of management, joint ventures, sharing and transfer of technology and equity capital. China has emerged to be one of the fastest growing FDI business generators. Many countries are scared of their pace of progress. It has been ranked as the second largest economy. In the span of an over past 30 years, it has worked hard to earn this image internationally. It has also become the largest exporter in the worldwide business. Consequently, it has also on the second rank for importing merchandises around the world. As for 2010, it reached $185 billion. It is second greatest recipient of FDI internationally. This paper aims to explore the implications of FDI in Chinese economy and factors which may affect the accumulation of FDI (Huang, 2003).

Overview of the Chinese Foreign Investment

Urban growth of China seems unique, big and complicated which has encouraged competition globally. It is quite interesting to mention that earlier to the era of economic reforms; China seemingly arrived at the verge of under urbanization. To counter this factor, their national-political philosophies casted immense impact on urban developments. FDI of China contributed in their exemplary progress since it resulted in introducing substantial amount of capital, generating jobs even at the time of recession, sharing and transferring technology, expanding trade, encouraging competition in the local markets which really helped them to improve the quality of local goods and labor. The whole thing re-adjusted the supply chain by adding more expertise and connected China to global markets (Wei & Liu, 2001).

Factors affecting the Foreign Investments

Capital Accessibility

In the beginning of 2000 China had already begun its efforts for overtaking the United States which remained the world's largest beneficiary of “foreign capital”. FDI consists of certain capital. It includes an outside investor wants to place and risk in the context of local constituency. There are some major elements which affect the impact of the availability of capital like conditions of global capital markets and prevailing economic atmosphere which evaluate the FDI's flow into China. An active economy of global investment together with ...