Business Skills and Employability - Essay Example

? Business Skills & Employability Table of Contents Table of Contents 2 Introduction 3 Discussion 3 Reasons for China attracting huge FDI in last 30 years 4 Alternative investment patterns emerging to challenge FDI growth 8 Conclusion 10 References 12 Introduction China is the topmost developing country that has attracted huge volume of foreign direct investments over the last thirty years. The huge inflow of foreign direct investments has led to rapid development of the Chinese economy in a short span of time as compared to other nations. The reason why China has able to attract huge volume of inflow of foreign direct investments is an area of investigation in the field of international policy making. In order to understand the reason behind the huge inflow of FDI in China, the areas of economic reforms need to be studied in context to China, the policies framed by the government in relation to the foreign direct investments in China. The favorability of the investment climate of China in the eyes of the foreign investors need to be studied by considering the several factors that affect the inflow of foreign direct investments in the country. The analysis of the quality of infrastructure available in China for the foreign direct investments, the availability of the manpower resources in China, the regulatory framework and the laws in various sectors for foreign investment are important to understand the reasons why China has been able to attract huge inflow of foreign direct investments over the last three decades. Discussion The reasons behind China’s ability to attract huge foreign direct investments in the country over the last 30 years have been discussed as follows. The alternative investment patterns that have emerged in order to challenge rapid growth rate of foreign direct investments have also been included as part of the discussion. Reasons for China attracting huge FDI in last 30 years China has been the top developing country over the last thirty years which has used the foreign direct investments as a tool for economic development. The foreign direct investments in China have allowed the country to integrate its economy with the world trade and grow into an economic superpower over a short span of time. The reasons behind China’s ability to attract huge foreign direct investments in the country are the availability of favorable infrastructure for the foreign investors, the high potential of the manpower resources and the total factor productivity of China, the policies of the government in framing favorable laws and regulations for the foreign investors and the performance requirements of the foreign investors. A picture of the growth of foreign direct investments in China has been represented below in Table 1. Table 1: FDI Inflows ($US) in China from 1983 to 2012 The above data have been plotted in graphical form as represented in Figure 1 as shown below (The World Bank, 2013, p.1). Figure 1: Increasing Trend of FDI Inflow ($US) in China from 1983-2012 The policies framed by the government in China have been established in such a way over the last three decades that the regulatory framework has been viewed favorably by the foreign investors in China. The government has set up separate laws by classifying the foreign investors into categories like wholly owned foreign enterprises, joint venture of the foreign enterprises and the Chinese entities and Sino-foreign co-operatives. The People Republic of China maintained a Guiding Directory for the investors who are looking for foreign investments in China. The policies framed by the government offer provisions for incentives in case of foreign investments in the special economic zones as designated by the People’s Republic of China. Although in the initial stages, the People’s Republic of China had imposed performance requirements for the foreign investors, the policies on foreign direct investments were instituted with an object to provide preferential treatments to the foreign investors who invested in the economy of China. The regulatory framework offered provisions for incentives, subsidies to foreign investors belonging to different industries. The preferential treatment was provided to the foreign investors according to the relaxations made available to the different sectors in the regulatory framework. The difference in treatment in favor of the foreign investors was noticeable in comparison to the domestic industries of China (Long, 2004, p.4). The exposure of the domestic industries to the foreign competition due to the increase of foreign direct investments led to the development of the domestic industries as they had to increase their productivity, quality at competitive price with respect to the foreign investors. This led to the improvement of the industrial climate of China with the technological advancements, transfer of knowledge on business processes resulting in increased production volume in the economy. This has been largely due to the huge inflow of foreign direct investments that have been catalyzed by the policies of economic reforms and setting up favorable laws for foreign direct investments. The People’s Republic of China also set up performance requirements of the foreign investors who invested in the economic sectors of China with an aim to attract high quality of foreign direct investments (Long, Zhang, Feng and Pan, 2003, p.24). After the accession to the WTO, China has relaxed the performance requirements of the foreign investors for investments in the economy of China. This has been done by China in contrary to the commitments made by them at the time of accession to WTO. This has led to the huge inflow of wholly owned foreign enterprises in China who have replaced the majority of the foreign investors in the Sino-investment climate. The main reason behind the huge growth of foreign direct investments in China has been the policies aimed at consolidating the industrial base through healthy exchange of technology and business expertise with the foreign investors that has led to the increase of value of gross domestic product. The huge volume of foreign direct investments in China over the last thirty years have been fuelled due to the efforts of the policy makers in establishing the infrastructure for foreign investments which is considered to be of the highest quality. The government laid favorable infrastructure with the provision of the cheap sources of energy, electricity, water required for the process of production. The efficiency of the transport network, the various modes of connectivity of the industrial establishments provided favorable logistics for the growth of foreign direct investments in the country (Jiang, 2002, p.46). Apart from this, the government also encouraged the population to take part in the production work which led to the increase in the total factor productivity of China. The availability of high volume of manpower resources at affordable cost was considered to be a favorable factor by the foreign investors. All these factors were viewed to favorable by the foreign investors which enabled China in attracting huge volume of foreign direct investments over the last thirty years. Alternative investment patterns emerging to challenge FDI growth After the rapid growth of foreign direct investments in China over the last thirty years, the rate of growth of FDI in China has slowed down mainly due to the global financial crisis in the US and its impacts on the global investment climate. The developing countries like China have witnessed a reduction of the inflow of foreign direct investments due to the fall in the liquidity in the economy and the decrease in global demand. The government has thus looked to sustain the economic growth rates of the country by looking for alternative options for investment in China. The alternative patterns of investment in China that have emerged to challenge the dominance of the foreign direct investments have been observed in the form of Foreign Institutional Investors (FIIs). The reason for the emergence of the alternative pattern of investments in the form of FIIs is due to the measures taken by the government in expanding the Qualified Foreign Institutional Investor Scheme. The Chinese Security Regulatory Commission has lifted the restriction that were earlier put on the qualified international fund managers to invest in the stocks within the amount range of US$30 billion to US$80 billion. These policies were undertaken by the government to send the signal to the foreign investors that China has opened up its capital markets for investment as a step towards globalizing the Chinese currency (Wang, 1995, p.35). The foreign institutional investors have started to flow into the economy due to the encouragement of the government aimed at sustainable economic development. The foreign institutional investors are the companies that have registered themselves in the stock exchange of China and owned the stocks of the local enterprises by investing in their stocks. This has provided the Chinese companies with the foreign sources of capital required for sustaining the production levels of the company. Although the FIIs have not been involved in the process of production, distribution, marketing, customer service, etc., these investors have shared the risks and the returns on the investments of the companies in proportion to the stake held by them. The foreign direct investments required the investors to engage into investments that require set up of establishments for the purpose of production. This involved enormous expenditures for procuring the raw material for production, maintenance of relationship with the suppliers, raising funds for the business looking at the long term and short term goals, recruiting manpower resources for different management levels. All these activities meant that the FDI had to set up foreign establishment through investments in China. In case of joint ventures, the foreign investors shared the profits as well as the losses in the proportion of ownerships in the foreign investment. Although the risks and returns were shared between the foreign investors and the local enterprise in case of joint venture, the volume of investments and the ownership in case of FDI is much more than that of the FIIs. The FIIs are also foreign investments that have emerged to challenge the growing trend of foreign investments due to the benefits of both the foreign investors and the government. The foreign institutional investors have started to invest in China which allows them to avoid hazards of running physical industrial operations in the country but at the same time divide the returns on the investment along with the risk involved. The foreign institutional investments have emerged as alternative pattern to the foreign direct investments looking at the short term perspective of business growth. The FIIs have emerged as useful source of foreign capital required to sustain the economic activities in China. The inflow of foreign capital has helped the government to inject funds in the economy the stimulated the demand of the economy. Thus by stimulating the demand, the policy makers in China have been able to foster the growth of production in the economy. Thus FIIs have been viewed as alternative form of investment to the FDIs that would be able to drive the economic growth in the timers of crisis. While the People’s Republic of China has encouraged the inflow of FIIs in their best interest, the foreign investors could also derive the comfort through the flexibility of exiting the investment positions in short time which would not have been possible in case of FDIs. Conclusion The foreign direct investments have flowed in rapidly over last three decades in China mainly due to the economic reforms and the favourable policies of the government in attracting the foreign investors. The availability of high quality infrastructure, manpower resources, subsidies and incentives offered by the government have led to increase in the inflow of foreign direct investments. The rate of foreign direct investments has, however, slowed down due to the effects of global financial crisis. As alternative patterns of investment, the foreign institutional investors have started to flow into the Chinese economy. In the best interests of the economy of China, the government has removed the quota on the qualified international institutional investors in terms of the amount of investments allowed in the capital markets of China. Thus the alternative pattern of investments shows the emergence of the FIIs in China due to the globalization of the Chinese financial markets and the intention of the government to internationalize the Chinese currency. The inflow of large number of FIIs have provided foreign capital to the enterprises in China and thus helped in sustaining the growth of the Chinese economy. References Jiang, X. 2002. China’s FDI Economy. Beijing: University of China Press. Long, G. 2004. Chinese Policies on FDI: Review and Evaluation. [Pdf]. Available at: http://www.cgdev.org/sites/default/files/9780881323818-Ch12.pdf. [Accessed on 18 November, 2013]. Long, G., Zhang, L., Feng, L. and Pan, Y. 2003. Processing Trade in China: A New Path of Industrialization. Beijing: China Development Press. The World Bank. 2013. China: FDI Net Inflows. [Online]. Available at: http://databank.worldbank.org/data/views/reports/chart.aspx. [Accessed on 18 November, 2013]. Wang, Z. 1995. Investments in China of world famous FIEs. Beijing: China Economic Press. Read More