Chinese Economic Development Gain Benefit from Foreign Investment - Assignment Example

Law Name Institution Course Lecturer Date Chinese economic development gain benefit from foreign investment Chinese economic grown and benefit from foreign investment As Lee (2002) observes, over the past three decades, China has seen a remarkable economic growth rate. From 1978, the series of institutional changes ultimately led China to become a fastest growing market economy due to its economic reforms. China’s real GDP on average has grown by 8-10% each year and this has been brought about by investments from multinational firms. The established investment policy before post-Mao China was created and designed with an aim to gain the benefits of the resultant foreign direct investment. As Jacob (2011) observes, the policy was promoted in a way that China would not suffer any or perceived negative consequences. The policy makers subsequently segregated the investment regime and overly restricted and prohibited investment that can affect the domestic Chinese producers. In areas where Chinese firms were vulnerable in international competition, the government then limited the foreign firms operating in the sector. Physical and human capital accumulations together with innovation have led to the perceived growth. Koopman, Wang & Wei (2009) observes that, China has consistently seen large volumes of capital inflow dominated by FDI. Global investors have poured a lot of money in China in the previous years as they see China as a growing market. China is optimistic on increased capital inflows since it is the world’s second largest economy. Beijing 2012 to 2015 plans had been designed to attract around $120bn of FDI every year (Jacob 2011). The rate of job creation is high in China due to the effect of FDI in Chinese manufacturing sector. China is paced as one of the country that receives the largest FDI and foreign multinational enterprises have advanced the rate of job creation. FDI promote positive effects on the growth of employment. However, the positive effects of such employment depend on the firm’s characteristics and in particular the firm access to export market. Export growth has led to high economic growth for China for prolonged periods. The growth is attributed to the two development policies adopted by China based on exports expansion and FDI for economic performance. FDI has contributed a lot to upgrading of skills and technology in China. The unified growth model is remarkably seen by physical capital accumulation, innovation drives in various sectors and human capital accumulation. The aggregate income in China can generate trajectory development. As Koopman, Wang & Wei (2009) points out, apart from direct benefits to Chinese economy, FDI have promoted a number of Chinese companies. Chinese firms have developed in a rapid way with some already becoming multinational corporation like the case of Huawei, Lenovo and Haier. Chinese firms have learned a lot from foreign firms to develop their capacity for global competitiveness. The nature of Chinese FDI is heterogeneous based on country of origin for most firms. In the industries with diverse foreign firms, Chinese forms are more productive in those industries. As foreign firms compete in China, Chinese firms get exposed to various technologies, management skills and marketing methods brought by the firms learning more and faster. As foreign firms compete among themselves and against Chinese firms, China firms are able to leverage the competition and get greater benefits. Attracting foreign fund Lee (2002) observes that, China has encouraged FDI as a way of developing its economy. FDI can be traced back from promulgation of Sino-China Equity Joint Venture law in 1979 and Foreign Capital Venture law in 1986. Foreigners were given a number of favourable treatments like cheaper land and tax reduction. Most of Chinese local governments also set up their investment promotion agencies and in such context of competition, many even offered illegal favourable treatment. In 2001, China became a member of World Trade organization and thus reduced or abolished some of restrictions and performance requirements on FDI. Over a decade, local governments have assumed considerable autonomy that directly shapes the investment policy in China. The devolvement of investment issues to local governments have opened a major loophole for foreign investors to influence and shape the local investment strategies. Investments have been encouraged in particular for export production in those sectors where domestic capacity can be generated and boosted. Their interests have continued to be at the fore front. The policies that shielded the domestic producers and allowed them to access external markets for their products with reduced competition have been challenged from mid-1990s. The stance from external actors sought for creation of a leveled investment ground. The internal actors’ stance was also questioning the logic claiming that it was meant to maintain the status quo (Lee 2002). Subsequently, there has been a considerable liberalization and extension of ownership and investment forms. Social stability was a conception that led China to enter in WTO. The potential impact of foreign investment on social stability has become a remarkable aspect that shapes the country’s investment policy. China has continued to suspend some laws in order to attract foreign investment and particularly in proposed free trade zones like Shanghai. This in turn has driven and opened up economy for sustained growth. The changes in the law have provided innovative ways by removing unnecessary administration and transforming the state’s role in economy. The boost effort that attracts foreign investors from abroad has seen some falls in recent years. The statistics and reports given by the government show a lagging or falling trend of FDI incomes and this is highly attributed to global financial crisis. In turn, China is increasingly cutting bureaucracy in free trade zones. The test on financial liberalization is meant to offer incentives for the government to maintain its economic growth. Export and investment led mode of expansion is acknowledged to be a positive tool and thus an attractive market for financial and strategic investors has continuously been adopted. The alleged bureaucracy and lack of clear regulations has always been a concern for investors that come to China. FDI fall has led the Chinese government to open various industries for overseas investors as well as coming up with policies that suit the climate for foreigners. A worsening regulatory environment has been perceived to affect FDI. There are a number of areas that are targeted for change approval. The laws on foreign investment, cooperative enterprises and Sino-foreign joint ventures in free trade areas have continued to be suspended. There are essential steps taken by some major cities like Shanghai in order to explore investment as well as trade policy innovations. The expansion of service industry, financial reforms, interest-rate liberalization and convertibility of Yuan are some of most focused on steps to upgrade the economy. China huge market that has great potential due to its population has remained an attractive for FDI. Market-seeking FDI are attracted by a country whose middle class population is growing quickly. Globalization has also been an irresistible trend and countries have seen the need to integrate in the global economy. Transnational companies from developed countries continue to invest abroad making developed countries to be an important source of FDI. China has an affluent human resource where every year, there are more than 6 million graduates from colleges and universities. The rural areas also have a huge pool of labour and such reserves of human resource are important in meeting the demands of FDI (Koopman, Wang & Wei 2009). Chinese workers benefitted from the foreign investment 1. The overwork problem in china Death from overwork has become an increasing phenomenon in China. Some of the cases have indicated workers dying from heatstroke, exhaustion and collapsing by sheer overwork. Workers who take excessive overtime hours and week-stretch working for 14 hours in a day have been reported to suffer some major health problems that results to instant death. Most of the cases have happened in the factories production lines or shortly after a worker is taken to hospital after collapsing. The version of death phenomenon in China has been confined to some ranks and particularly the blue-collar workers. According to Chan (2005), ultimately, a survey carried out on the Health of Intellectuals in cities have found out that the average life expectancy that was 58 to 59 years back in the second half of 1990 has fallen to 53 to 54 years. In 2006, Beijing Academy of Social Sciences confirmed the death of around 134 academic experts and professionals over five years due to overwork cases. Work pressures that have increased have caused over 600,000 deaths of employees in China and particularly urban white-collar workers who suffer from overwork. Working overtime has become a norm in China. The problem of overwork is directly related to the need to overcome the financial problems and cope up with rising living costs. Firms also insist that the employees should work for more hours in order to perform better and remain competitively viable over their competitors and ensure that they remain in the business. The cheap labour is what has prompted most of the foreign investors to establish their manufacturing units in China but it has gone out of control (Chan 2005). There are horrifying reports that ascertain that around 70% of intellectuals in China face the risk of premature death to a greater or a lesser extent due to exhaustion. The statistics for the cities in China’s coast where there has increased development of technology and special skills in an advanced way are scaring. The problem of death caused by exhaustion among most intellectuals is growing steadily and in a more acute way. The average age for those workers who die from overwork is getting steadily lower. One of the most disturbing reports from Liaowang Eastern Weekly revealed that, over 1 million Chinese were dying from overwork every year (Chan 2005). The outstanding achievement China has made in the world has led the workforce to be more eager to gain in the trend by offering what they have, the labour. Employees work beyond the stipulated working hours and as this becomes a trend, such shocking statistics of death and negative impacts if overworking will continue to be heard. According to Allard & Garot (2010), the reasons behind the death of various classes of workers in China have been attributed by rising pressure for survival. The society has overly become more materialistic and competitive. However, the rates of death are attributed to weak labour laws in the country. The government failure in enforcing strict labour laws has led most firms to exploit any available labour without considering the important aspects of health and life. Similarly, inadequate social security systems are also to blame. Much of the government former authority has been relinquished over commercial authority. Ultimately, entrepreneurs and business leaders in the country with place far too little value on health of workers and well-being of the employees. China’s new elite who are interested in making money have ended up becoming victims of this unregulated arena. 2. Apple, Sony etc. explore the truth of the Sweatshop problem. According to Frost & Burnett (2007), reputable companies like Apple, Sony, Microsoft, Dell and HP are operating in China. The factories production lines have become opened ‘sweatshops’ where employees are lowly paid. As 85% of Chinese population lives in rural areas, the industrial-oriented economy has continued to rely on migrant workers that make up the majority of workforce. As Allard & Garot (2010) observes, over 150 million migrant workers in China do not have protection or state benefits. Lack government protection lead them to endure poor working conditions, forced and excessive overtime, failure to acquire good employment contract, severe health risks and denial of social security. Conditions inside most of these companies have led a number of workers to kill themselves. Frost & Burnett (2007) further observes that, Apple’s Shenzhen factory is one among those factories that deals with production of iPhone, MacBook, and iPad. Many tasks performed by staffs are monotonous like shaving aluminum edges for Apple logo where most workers spend around ten tedious hours. The workers who are paid low wages from £1.12 an hour to £180 in a month cannot even buy a single iPad for the month’s salary. Lowest earners can do a maximum permissible overtime for 80 hours in a month but ends up earning less that they cannot even pay tax. Some workers have been forced to work for an entire shift. There are repeated reported cases of underage workers, strict management control inside the factory and overtime in companies like Apple. 3. Wages is above average but still low, the severe situation enlargement by the media Cooney (2006) observes that, at international level, it is hard to gauge a ‘fair’ minimum wage since each country’s level of development and cost of living differs. The China legal minimum wage has been computed according to different localities linked to local cost of living. Similarly, Chinese has introduced the same measures in mandatory labour laws for urban workforce. A 44 hours work per week, with minimum Y420 in special economic zones, Y290 for Beijing and Y315 in Shanghai (Allard & Garot 2010). However, there is increased repertoire of manipulations by managers in most foreign firms. Companies end up paying less than the proposed minimum wage. Most workers do not get pay for overtime work and 32% are paid below legal minimum wage. There are cases of very low and sometime unpaid enforced overtime. The situation of lax management and unpaid wage arrears have been a custom in Chinese newspaper report. The presence of multinational and reputable companies like most of electronic companies in China has attracted media attention on that issue that involves violation of labour laws. In turn, these companies will have to comply with the domestic labour laws to protect their image at international market. Local and international media will ensure that the companies assume the necessary practices to raise workers hopes by addressing issues that have led to protest, internal disputes and ensuing contentions. The seasonal nature of factory work has made the situation of low wage and unpaid labour a common phenomenon. Social networking sites and platforms have increased to expose companies’ and acts that might not satisfy the workers. Overwork and lower wages is a topic that can trigger much public outcry in the Internet. The public posses an important instrument to ensure that their employers will take the necessary measures as set by the government to relieve the pressure of workers protesting against unhealthy working styles and exploitation. The media has also constantly addressed the issues of over 38 million migrant workers who have continued to be exploited segment of labour force (Cooney 2006). Chinese labour law’s effectiveness against Foreign investment 1. The Chinese labour law importance in protecting Chinese workers and doubtable effectiveness. According to Chan (2001), there are various solutions that are proposed for China to meet the awkward outcome of labor condition over the past few years. One thing that has been looked at so as to improve the situation of overworking in China is labour laws. The employees who have a tendency to work beyond the stipulated daily of weekly hours and the lack of organizational concerns on human rights can only be contained through labour laws. In some cases, workers are denied their rights to put forward their demands or get their due. That will guarantee all Chinese workers a life of dignity. The government will also work on legal loopholes that make labour laws ineffective. The law that will be enacted and amended will require a proactive agency to implement the regulations strictly and therefore protect employees’ legitimate rights as needed. Cooney (2006) points out that, the dire need today is to strengthen implementation of the law and enforce the current labour laws. One of the intriguing considerations that make the effectiveness of such labour laws doubtable is the need for education and civic awareness. Educational efforts are needed to create the level of awareness that will in turn lead the society to accept the measures put down to regulate work. The risk of overworking also need to be communicated so as to change the country’s overall working culture. If the government does not set the right process and agents of change, the required change in work culture might be far from being reached. A down-to-top approach will be the most effective so as to ensure that public decisions are implemented toward the implementation of measures toward the desired change. Another significant area that might make the efforts of the law ineffective is that in China, basic labour rights have in most cases been ignored and violated. In the public discussion, there is no obvious measure seen that the government can take to reduce the serious findings of around 1 million figure of deaths from overwork annually (Cooney 2006). One of the effective ways in which Chinese people could have possibly addressed their labour needs and rules is trade union organizations. However, without such an agency to work for and by the workers, the law alone and its enforcement institutions will not prevail at all in bringing any meaningful or long lasting change for the better. There is a general lack of basic institutional empowerment for the workforce. Workers health and safety committees are some of the important avenues where workers increasingly become aware of their health needs. The committees are involved in gathering data and statistics that in turn offer important information for collective and individual decisions. The work of unions and committees will need to be re-evaluated so the workers can access to avenues where they can collectively stand up and condemn employers that insist on punitive working conditions and hours. Any threat to employees’ physical and psychological capacities will only decline with such effective measures (Chan 2001). As Cooney (2006) observes, social risks increase as the government fails to address excessive and unsafe working hours. Police have crashed with workers who explode in angry protest against abusive company policies. In response to such protest, employers and management adopt piecemeal changes approach to their policies. These changes are done to restore normal production in the factory. The government delay in its role of regulating these factories lead to violent situations and mass worker unrest. Excessively low pay and excessive working hours can only be addressed by a systemic way where all the stakeholders and all workers concerns will be tabled down for redress. Ineffectiveness of labour laws may end up chaotically if the laws do not consider all the workers. One intriguing approach that these laws may take is to offer solution to a certain level of employment and demean the other lower levels the expected improvements. Considering that the intellectual in China is one group that has been reported of succumbing in ever-growing numbers of chronic overwork, the problem can be much bigger among other workers like hard-pressed migrant workers. 2. Cases has been hold under Chinese labour law against foreign investment Cooney (2006) points out that, legal channels have responded to settle worker’s grievances. The growing awareness of workers to use legal arena has been confirmed. The Enterprise Law 1988, Trade Union Law 1992 and labour Law of 1994 are the main labour-related laws that provide legal framework to develop industrial relations when China is in transition to private ownership. The laws have legalized work stoppages, slowdowns and given freedom to organize trade unions. As Chan (2001) observes, it has also continuously promoted the right of collective bargaining, maximum number of working hours and minimum age for entering into workforce. There are established labour disputes procedures, Staff and Workers Representational Congress to supervise management as well as to co-determine veto decisions by the management. Notwithstanding, enforcement has not been effective and in both state and non-state sectors, there is no much regard for the legal procedures and therefore, unfair dismissal and impunity continue to be experienced. Labour violations were more rapid, serious and widespread from 1990s and with increased scale and frequency. Under previous labour laws, labour disputes leaped with arbitrations rising from 19,000 cases in 1994 to 184,000 in 2002. Workers have increased their awareness of legal rights through the law that offered a favourable platform. Serious labour abuses like owed arrears and workers wages, laid off workers, lack of compensation for injuries, irregularly paid pensions, excessive working hours, and contraction of work-related diseases have in turn led to increased cases. Chinese press has documented much of labour violations as well as international media. More educated workers have taken their cases for legal arbitration. Legal channels have averted crisis situations and regulation of industrial relations. Under China’s labour laws, private and foreign enterprises are required to have an enterprise-level union branch maintained by 2% of factory payroll. Companies like Wal-Mart has remained a main focus by its failure to comply in setting up ACFTU trade union branch together with others like Motorola, Samsung and Kodak (Allard & Garot 2010). References Allard, G, & Garot, M J 2010, The impact of the new labor law in China: new hiring strategies for foreign firms?. Revista Direito GV, 6(2), 527-540. Chan, A 2005, Recent trends in Chinese labour issues—Signs of change.China perspectives, (57). Chan, A, 2001, China's workers under assault: the exploitation of labor in a globalizing economy. ME Sharpe. Cooney, S., 2006, Making Chinese labor law work: the prospects for regulatory Innovation in the People's Republic of China. Fordham Int'l LJ, 30, 1050. Frost, S, & Burnett, M, 2007, Case study: the Apple iPod in China. Corporate Social Responsibility and Environmental Management, 14(2), 103-113. Koopman, R, Wang, Z, & Wei, S J, 2009, A world factory in global production chains: estimating imported value added in Chinese exports. Centre for Economic Policy Research. Lee, C K, 2002, From the specter of Mao to the spirit of the law: Labor insurgency in China, Theory and Society, 31(2), 189-228.Chicago Read More