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China's Foreign Direct Investment

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Tara Clayton

on 21 February 2014

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Transcript of China's Foreign Direct Investment

China's Foreign Direct Investment

by Emma Clayton
and Tara Martin

United States-Sino Relations

China's biggest attraction to foreign investment is now its large consumer market, contrasting the long-time low cost of labor.
What is FDI
Direct investment into production or business in a country by an individual or company in another country.
key to global economic integration
creates direct, stable, and long lasting links between economies
allows the host economy to promote its products in international markets.
FDI and the Economy
Special Economic Zones

First special economic zone created in 1979, in small fishing village of Shenzhen.

Shenzhen transformed into southern mainland China's major financial center.

Special Economic Zones account for 22% of China's GDP, 46% of FDI and 46% of exports.
(Liang, Chen)

First appeal to investors was cheap labor; changing as new generation of Chinese grow discontent with conditions endured by China's workforce.
"Reform and Opening"

1949-1978; China operated as a command economy.
Isolationist + Central planning
Deng Xiaoping instituted watershed "reform and opening" policies.
1st stage = 1970's-1980's. Decollectivization of agriculture and foreign investment.
2nd stage = 1980's-now. privatization and contracting out of much state-owned industry + lifting price controls and protectionist policies.

Per capita income growth has been significantly higher in regions where FDI is concentrated
Positives
Negatives
Inland regions at a disadvantage
Nike Inc.

China is Nike's "most important emerging market."
Biggest market outside of U.S.
7,000 retail stores
26 years to make 1 billion
Doubled to 2 billion in past four years.
Starbucks

Biggest coffee chain in China; 570 stores in 2012. Goal of 1500 by 2015.
Rapid growth (38%) as middle class embraces coffee culture.
$167 million in last quarter of 2011 alone.

Positives
Heinz
Heinz will spend 165 million to buy Foodstar, a growing soy sauce and fermented tofu maker.
Molson-Coors Brewing Company

said it will invest 40 million to form its first joint venture in China
Lags far behind Anheuser-Busch, which has 30 plants across China.
Harms local workers and businesses.
Cheap materials
Ford Motor Company

China is now world's largest automarket.
4.9$ billion invested in China, with plans to build new 760$ million production plant in Hangzhou.
Must play catch-up with GM and VW.
Asymmetrical relationship between investors and host governments
Reduction in government revenues
Nearly 21 million people were employed by foreign affiliates of multinational corporations in 1990, and that rose to 69 million in 2011.
Poor working conditions
FDI Outflow
Regulation of FDI

4 types of regulation:
foreign equity limitations
screening/approval mechanisms
employment restrictions (particularly of foreigners)
operational restrictions (branching out or land ownership)
(FDI Regulatory Restriction Index)

Also use local companies as form of regulation (tax breaks, preference for government contracts/business)
China's OFDI stock reached $298 billion dollars by the end of 2010
Doors Wide Shut?: China's FDI Regulation

China measures .4 on the FDI Regulatory Restrictiveness Index. (scale: 0-1)
(FDI Regulatory Restriction Index)
China's regulations try to align FDI inflow with national priorities.
Lower tax rates for investments in western provinces (15% vs 25%)
("China Woos Foreign Companies..")
Certain sectors encouraged, restricted, or banned: less construction, automobiles, and coal, chemical and poly silicon plants. More green energy, biotechnology, hospitals, financial firms and high-end equipment manufacturing.
("China Releases New Guidelines..")
SOE's discourage FDI in some sectors.

Hong Kong

The largest portions of China's OFDI, 72% or $228 billion went to Asia.
Besides Economic Growth...
The second largest, $44 billion went to Latin America and the Caribbean.
Host economy receives management, accounting, and legal guidance from investor.
Incorporate latest technology, innovations in operational practices and new financing techniques.
In 2010, the flow of Chinese OFDI to Europe double from what it was in 2009. In 2010 the OFDI to Europe reached 10%.
Australia received 14% of China's OFDI in 2010.
Investment in the U.S. has been growing.
Floating Garden in Beijing
Direct investment to the U.S. has grown by 130% from 2009 to 2010.
China received $65.1 billion USD in green energy investment in 2012 alone

(
Polycarp, Clifford)

In 2010 China received 105.7 billion dollars in FDI.
Mao money Mao problems
(Amadeo, Kimberly)
("China Releases New Guidelines..")
(H.J. Heinz Company)
(Car News China)
(YouTube)
(Randomwire)
(Fairchild)
(Mao)
(Floating Garden)
("China's Latest Five Year Plan
")
(China GDP 1980 to 2012)
(Gaining Ground)
(Starbucks: We Love China)
(Beer Market in China)
(Bloomberg)
(General Electric Company)
(Graham, Edward)
(Bloomberg)
("Negative and Positive Effects")
(Davies, Ken)
(Davis, Ken)
(Davis, Ken)
(Hanemann, Thilo)
(Hanemann, Thilo)
Full transcript