Dtrminnts of Foreign Dirt Investment in China - Essay Example

Dеtеrminаnts of Foreign Dirесt Investment in China Student Name Institution of Affiliation Date of submission Foreign direct investment for any country is key for the development of the economy. Investors from other countries come into the foreign economy to tap into those areas that are profitable and in return coming with foreign investment that is key in driving the country towards positive economic growth. No country that can depend on itself to develop all its sectors without investors. Investors play an important role in seeing the development of a country. Some of the scholars have used both the VAR model and multiple linear regression model to determine the relationship that exist between different factors and Foreign Direct Investment. According to Jens and Lars 2008, there are different factors that influence different investors to come into an economy to invest. Investors take several considerations before they decide whether a given economy and sector is fit for investment. Gilchrist et al, 2005, indicates that China is one of the countries that most of the investors in the world have interest with. They seek to invest in the country different sectors due to the well-developed economy and the conditions that exist in it. This means that the inflation rates in China are well controlled that they cannot affect the business environment easily. The cost of investments here are not easily affected by the inflation rates. In the recent past, its economy has been growing positively despite the general world economy not performing well. This has encouraged most of the investors to come in and tap the profits that the economy produces. Santis et al, 2004, indicates that when an economy is efficient more investors will be attracted towards investing. They will be psychologically be satisfied that they will be generating profits that are worthy for the investments that they have undertaken. Brown et al, 2006, indicates that when a given economy has got an efficient capital market, it will be easy for investors from other countries to come in. With the fact that China is one of the developed economies in the world hence making it easy for most of them to move there and carryout different investments of interest. This means that the exchange rates volatility experienced in this market is not huge to scare investors. When the exchange rates are stable it means that investors will be confident to invest as they will not easily loose value for their investment due to external influence. Capital markets play an important role in allowing capital from the foreign investors to get into China. In fact, capital markets act as the gate way for all kinds of investments to be undertaken. When a country has got a well-developed banking system and other structure that are related to capital markets then it makes it easy for different investments to take place. Investors will always look into on the easiness to get into a given market and also how to exit the market in case they find out that the kind of investment they are undertaking is not profitable. The legal environment in china also has played an important role in attracting foreign directly investment. China has got a well-developed legal environment where investors can easily read and understand what they are required to do. Due to proper laws that have been enacted regarding investment in different sectors of the economy, the investors are aware of what they are getting into and map the amount of profits generated out of a given investment without difficulties. Laws are always important in ensuring order in any given sector (Blonigen & Bruce, 2005). Therefore, a country with well-organized laws always will be a point of attraction for investors to pump in there capital. Most of foreign investors that have been able to get into China have been able to get it easy when dealing with different aspects of law. On top of that, Gilchrist et al, 2005, indicates that the number of multinational companies that exist in a given country have got a direct impact of the quantity of the direct investment that will get into a given country. Therefore, the fact that there is a good number of multinational companies in China has contributed in a great deal towards increase of the foreign direct investment. China is best known for its best practice in the construction industry. The multinational companies have provided an easy avenue for investors to invest in these Chinese companies. They have reduced the cost required to get into different countries for business transaction. When foreign citizen invest in the shares of the multinational companies, then it becomes easy for them to get income from different countries. This is an important criteria that has played an important role in ensuring that China get more foreign direct investment. The multinational companies in China have been key for China’s foreign direct investment. An example is where the construction companies have carried out activities in different nations. These has attracted a number of investors who want to invest in these different sectors of the economy. It is important to note that the quality of work that they carry out, has also been a reason as to why foreign investors have wanted to invest in these companies. It has provided a gateway to much of the foreign direct investment that has been done In China. Companies like Huawei that is one of the technological giants in the world has been a center of attraction for many investors. Most of them have invested in the company due to its profitability and opportunity for expansion (Blonigen & Bruce, 2005). Also, some of the Chinese engineering companies have carried out major projects in the world hence attraction more investors. Most of the foreign direct investment in China is associated to companies that have allowed foreign investors to pump money into them. They have been a major get way for investors to get into the china economy and invest in different areas of interest both in the long term and the short term (Wesson & Thomas, 2010). With the fact that the Chines government has been very supportive to companies when undertaking international project to ensure that they succeed in what they are doing, foreign investors have had confidence in investing in such like companies. Further, the government of China has been very key in ensuring that investment in the country is being taken to the next level. It has been very supportive to different players who want to invest in its economy. Different incentives have been provided to ensure a free environment to carry out business in these particular country (Svaleryd et al, 2005). Flexible policies have been put in place to facilitate easy investment process within the country. These has been a point of motivation to many investors. An example is where the government has been able to collaborate with foreign investors in the health sector from both India and Australia. The Chines government has been very supportive in seeing that these investors are getting a calm environment to carry out their activities (Blonigen & Bruce, 2005). This is not the only sector that the Chinese government has been supportive but we several others that the government has played a major role to see that the investors have got good returns for the investment they have done in that particular country. Foreign direct investment to a greater extent depends on the willingness of the government to support those foreign investors. This means that there is openness to foreign investment in china. The government is always will to support and protect foreign investors. Whenever there are issues that affect the foreign investors, it should be the government interest to ensure that they are solved as they are towards a prosperous economic growth. The government should always ensure that any kind of investment that these investors have undertaken is well protected. These has been what the Chinese government has always been undertaking frequently. It has been an investor friendly government. Through these many more foreign investors have been attracted into investing in the country hence seeing the growth of the quantity of the foreign direct investment (Wesson & Thomas, 2010). The kind of policies that are intended to protect these investors have been always been adjusted to fit the changing environment. These is meant to ensure that China is one of the beset countries in doing business. The labor market in China also to a great extent contributes a great deal towards having an increased quantity of foreign direct investment. With a population of 1 billion people, China is ranked as the most populated country in the world. These is not a weakness rather a strength due to the easy availability of the required labor to carry out different activities in the economy. Most investors when deciding a country to invest in, they always consider how easily they will access the necessary labor for them to carry out different activities. The cost of labor is one of the major component in the production process (Baker et al, 2008). Therefore, there is need to undertake the necessary evaluation to ensure that this cost is kept within desirable limits. China’s education system has played a great role in ensuring that the labor market has got skilled personnel who can be able to carry out different functions in a required manner. On top of that, with the fact the population is large to provide enough labor force to different sectors of the economy, the labor cost has been kept low. These has attracted many foreign investors to China. The engineering department in China has been very progressive. Many of the experts in these sector have been playing a key role in attracting foreign investors into China. The quality of work that they carry out has been amazing to the extent that they have been contracted internationally to carry out major projects. The construction industry has been one of those sectors that foreign investors have been willing to invest. Therefore, with the fact that there is enough number of engineers in China, investors are willing to tap into these opportunity. They want people who can easily assist them towards having profitable projects in different parts of the world. On top of these, the Chinese labor force is known for its creativity hence assuring investors of the continuity of their businesses. Innovation is key in the modern world hence there is need that employees should always consider the whether the employees they have will enable them compete in the market effectively (Blonigen & Bruce, 2005). The economic growth of China has been rising in the past few years. These means that various sectors of the economy have been doing well and they have been profitable. Also there has been a steady growth of the GDP in China. This has given confidence to foreign investors that they can be able to get good returns on their investments. When an economy is doing well then it means that investments are also going to grow and any kind of business activity is going to do well both in the short run and the long run (Blonigen & Bruce, 2005). Investors are always keen to observe the way an economy is doing to ensure that everything is moving towards the right direction. One cannot invest in an economy that has a likelihood of failure. They will always try to mitigate the risk by avoiding such an economy. China has had an advantage on these due to the fact that the economy has been doing extremely well to a point that it is competing with major world economies like the United States and Japan. References Gilchrist, Simon, Charles P. Himmelberg, and Gur Huberman, 2005. Do stock price bubble influence corporate investment? Journal of Monetary Economics 52, 805-827. De Santis, Roberto A., Robert Anderton, and Alexander Hijzen, 2004. On the determinants of Euro area FDI to the United States: The Knowledge-Capital –Tobin’s Q framework, Working Paper 329, European Central Bank. Braun, Matías, and Christian Johnson, 2006. Where Does the Market Matter? Stock Prices and Investment around the World, Paper presented at the FMA Annual Meeting, Salt Lake City, UT, October, 2006. Jens Forssbæck and Lars Oxelheim, 2008. Financial Determinants of Foreign Direct Investment. Research Institute of Industrial Economics. Blonigen, Bruce A., 2005. A Review of the Empirical Literature on FDI Determinants, Atlantic Economic Journal 33, 383-403. Baker, Malcolm, Jeremy C. Stein, and Jeffrey Wurgler, 2008. When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms, Quarterly Journal of Economics. Svaleryd, Helena, and Jonas Vlachos, 2005. Financial markets, the pattern of specialization, and comparative advantage: Evidence from OECD countries, European Economic Review 49, 113-144. Wesson, Thomas J., 2010. An Alternative Motivation for Foreign Direct Investment, PhD dissertation (Harvard University, Cambridge, MA.). Read More