What Makes China an Attractive Location for Inward Direct Investment for Enterprises - Assignment Example

WHAT MAKES CHINA AN ATTRACTIVE LOCATION FOR INWARD DIRECT INVESTMENT FOR ENTERPRISES College: China has in the recent pastundergone spectacular growth. The country’s Gross Domestic Product in 2008 reached $4.4 trillion. China has gone ahead of Germany to become the third most developed economy in the world. The Chinese government has been employing strategies to curb its debt in order to lower any possible downturns in the near future. This project has incorporated over US $580 billion. The inward direct investment for China has grown with developments in the economy. In 2007, foreign direct investments reached $83.5 billion. Foreign outflows increased further in 2008 and has grown gradually since. The country went ahead to announce increased merger and acquisition deals to over one hundred and thirty mergers in 2009. Outer merger and acquisitions in 2008 exceeded US $27billion. China’s strength in the international investment lies its economy’s consistency through downturns (Qu et al 2010). Foreign outflow and inflows in China have been notably stable despite persistent downturns on the global threshold. Most studies attribute development of the Chinese economy and its financial stability to foreign investments. More than fifty per cent of Chinese exports come from foreign connections are located within the country. Out of five hundred of the world’s largest companies, three hundred have extended their productivity schemes to China. These foreign firms alone employed approximately twenty four million workers within China (Green et al 2010). The data taken shows that over three quarters of Western, Japanese and other Asian multinational organizations move to China for the domestic market (Urata et al 2006) Investors are especially attracted to China by the low costs of labor and land. The Chinese labor force is among the largest in the world. It consists of over one hundred and four million in the productive sector. This number alone doubles the labor forces of Germany, US, Italy, Canada and Britain all put together. The Chinese market is also characterized by offer deficit besides the favorable costs of land and available labor. China is endowed with resources such as minerals for example, aluminum, bauxite and oil that are useful in the investment process. Its investment is influenced by money supply and recent account balances. Countries seeking to attract foreign investment use such methods as these. The methods involve creation of incentives in reduced taxation on export of goods to China, tough recommendations on technology and favorable loaning processes along with good infrastructure for telecommunication and transport purposes (Paprzycki et al 2008). Chinese inward investments generally exceed those that are placed outside the country. The country has also resulted in creating provision for its international capital in its own foreign investments. China’s overseas investments have been encouraged by overflow of resources and the country’s allegoric domestic demand. The country’s excessive capacity in production has led to sectors of the Chinese economy seeking international investment opportunities. This for the sake of further growth in such industries that bear an overflow. Furthermore, investments take advantage of quota free access to countries like the United States by investing directly through other nations such as Africa and Cambodia. Other nations have advantages such as location specificity and incentives (Wang, 2002). The United Kingdom for example provides with investment grants. Chinese foreign investments take advantage of this benefits. Investments by the Chinese firms is also motivated by opportunities to knowledge on certain technologies. The Chinese foreign direct investment goes into other economies with the aim of obtaining technological knowhow. The technological knowledge later applies in China’s own production process (Zheng, 2008). The Chinese government encourages and empowers foreign investments with the aim of gaining raw material and technologies from other nations. Investments are decided by the government that goes ahead to select the best locations strategic for investing. The government maintains a degree of control on the outward direct investment. It seeks out these locations in bid to ensure investments are parallel with already set long-term policies and plans. China’s investment in the global platform allows it to benefit from foreign exchange that will promote China’s economic power (Di Minim et al 2012). China has also been involved in operations against protectionism in bid to alleviate its own disadvantages of crisis in the global structure. The foreign investment sectors work their way around protectionism where it cannot be done away with. Foreign direct investment of China abroad is linked to the openness of the host economy in question. In cases where the host economy is comparatively closed, sales and exportation are enhanced by factory investments in that economy (Lileeva, 2006). The methods adopted by the government and firms in inward and outward direct trade for China have so far been successful. Extension of foreign direct investment has led to improvements in the overall economy of China. This growth challenged comparative advantage as a conventional theory that argues resource production with regional developments. By itself, China is capable of creating both commodities and technology products. A boom in the foreign direct investment of china was achieved in 2005 when new policies to the Chinese statistics were adopted. China has relied on foreign direct investment to gain capital into the international markets than depend on loans. Of all Chinese inflows, most have been directed to manufacturing services than resource and services. Manufacturing recorded 63% of foreign capital in 2005. The Chinese service sector concentrates mostly on creating provision for property development in real estate. Real estate provides at least 9billion US dollars every year and has developed to be a rapidly growing sector. China depends heavily on its Asian economies such as Hong Kong and Macao for inflows. Most of these Asian counterpart inflows are concentrated on the eastern coasts as Jiangsu, Guangdong and Beijing (Shelton et al 2010). After the Chinese financial crisis, Foreign Direct Investment retracted back to normal reaching a peak point in 2007 where the values rose up to 1.9 billion US dollars. However, the overall negative impacts on the economy affected the developed countries while favoring developing countries. UNCTAD statistics rank China as a desired endpoint for most of the multinationals looking to invest. Perspective of the all potential investors lay in the qualities of abundant labor and land. Research proves that China tops with eight hundred and fourteen companies in the world engaged in investment (Haskel et al 2009). Differences in China as the top position and the second ranking nation is a wide gap. This indicates continual growth in the Chinese foreign development investment in years to come. This makes consideration of those manufacturing firms that plan to expand themselves in the future and their direction to the east. China can be advocated for as having established itself from the financial crisis period. Its reinforcement has further advance to stabilizing growth. Despite the Asian downturn, Asian countries were the major players in the comeback of China’s foreign direct investment. These countries include Japan and Korea among others. They accounted for over two thirds of ODI that involved mergers and acquisitions (Yang, 2010). China has also had strategies in the past to go global. Formally adopted in the year 2000, the strategy gradually gained popularity gaining China FDI flows. The strategy was aimed at promoting resource allocation to improve on international competition. The ministry of Commerce, responsible for identifying locations and making provisions for communication serves in improving ODI. The ministry gradually relaxes foreign exchange tools to create incentives for ODI. China’s outward FDI all in all accounts for 6% of the global outward direct investment (Remer 2005). Levels of a county’s per capita income determines the direction that foreign direct investments will flow and the quantity which flows. Investment from China is however, hard to track. Surrounding economies like Cayman Islands’ growth to tax havens emphasizes the importance of such economies. This creates a sensitivity that revolves around transfer of funds elsewhere for discretion. Economies all the same, still go ahead to borrow from developments in an effort to gain success as well. The Chinese economy model for example has been highlighted as a useful measure of development. Its sectorial divisions and the weight emphasized by gross national product have imparted organizational sense for several economies. China has grown into the top most preferred foreign direct investments destinations in the past few decades. It has gone further to become a basis of outflowing direct investments as well. Its economic threshold has slowly fledged (Buckley 2010). This is enhanced by priorities for foreign direct investment considered by policy makers within the Chinese system of decision. The overall economic growth has contributed to quality investments across the globe as foreign direct investments pushes for global intergradation. Bibliography. Buckley, P. J. (2010). Foreign direct investment, China and the world economy. Basingstoke, UK, Palgrave Macmillan. Di Minin, A., Zhang, J., & Gammeltoft, P. (2012). Chinese foreign direct investment in R&D in Europe: A new model of R&D internationalization? European Management Journal. 30, 189-203. Haskel, J., Slaughter, M. J., & Pereira, S. C. (2009). Does inward foreign direct investment boost the productivity of domestic firms? Cambridge, MA., National Bureau of Economic Research. Lileeva, A. (2006). Global links the benefits to domestically-controlled plants from inward direct investment - the role of vertical linkages. Ottawa, Statistics Canada Paprzycki, R., & Fukao, K. (2008). Foreign direct investment in China: multinationals role in growth and globalization. New York, NY, Cambridge University Press. 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