Chinese Foreign Direct Investment - Essay Sample

Introduction

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China is one of the most densely populated nations in the world which had more than one billion people by the year 2014. The country has continued to surprise many through its rapid growth making it one of the top countries contributing more in the Global GDP. It has also registered improvement in foreign investment both internally and externally (Amighini, 2013). The investment has since moved from resources seeking to advanced technology and marketing of its numerous products from all fields. The overseas improvement has also been seen in the developed countries where China is benefiting while investing in countries such as US, Australia, and Asia. This paper analyses the effects of the Outward Foreign Direct Investment by Chinese multinationals on the productivity and availability of labour in the mainland China. Details of the nature of investment are also given including the impact of the investment. Additionally, the impact in these countries mainly social and economic impacts have been noted on the Chinese labourers working away from their homeland.

Background study

Since the accession to the WTO (World Trade Organization) accompanied with the increased growth, China has emerged to be one of the significant players in the global economy. This not only affects developing countries such as those in Africa but also the developed States such as Australia, Asia and, the US (Amendolagine, 2013). China has gone further to invest in these nations in its quest to market its products while improving its ties with them. In Africa, China has been interested in the natural resources available while selling its products too.

Despite the progress by China regarding this issue, the nation has run into labour issues in their country. The foreign investments are causing a shift in the labour trends within China. Central to these has been the type of labour force which has been used especially in development projects in Africa and other developing nations. At the start, individuals did not want to work in foreign nations; this was because of the unpredictability of working abroad and the seemingly good working conditions in China. However, the trend has changed, now more individuals want to work outside the nation. Sole proprietors, at the moment prefer to open businesses in other nations as opposed to their home nation.

The average economic growth rate of China in the last decade has been documented to be 10% per annum, which is driven by infrastructure, technology, and the industrial sector that major in export. This is according to the Chinese Ministry of Commerce. Another major drive for the rapid growth has been the migration from the rural underemployment sector to the urban areas in search for opportunities (Anderson, 2013). However, the country has in the last ten years embarked on a strategy to relocate from rural underemployment. This has been influential in the world economy, in particular, Africa.

The rise of China is anticipated to be one of the most successful moves in the twenty-first century. The effect in areas such as East Asia has sparked some comments such as China ending the US era of being the Super Power Country. This is also expected to be dramatic as the US retaliates to retain its position, accommodate China in the new era or pave the way for China to take over as the top state in the world. To this effect, the International Monetary Fund (IMF), which is one of the global financial institutions, has ranked China as the top economic superpower. This is based on the total worlds GDP produced by China, which was 17% in 2014 while USAs GDP was 16% (IMF). However, China is estimated to remain in the low or middle-income group due to its large population, which was more than 1.2 billion in 2015.

In line with this projected success, various institutions in China are changing for the better so that they can have a good strategic advantage in both local and international trade. Labour training in China has been enhanced to incorporate international aspects. Moreover, the workers are required to be flexible so that they can work anywhere should the need crop up. Labour unions are seeing this as a positive step in enhancing the workers value and quality. However, their activities regarding protection and consideration of employees have intensified; they want the employee's wages and total remunerations be increased in line with their increased competencies. This is proving to be a difficult issue in the Chinese economy at the moment. As a result, individual employees feel that for them to be part of the revolution that has engulfed China, they may need to move out in search of foreign opportunities, after all, they have the necessary skills to perform and compete at the international level, thanks to the direct foreign investment efforts by their mother nation.

The effect and nature of foreign investment

Foreign Direct Investment refers to the investment of a countrys resources into a foreign structure and organisation. However, this secludes stock market investment. To Chinas Ministry of Commerce, FDI refers to the introduction of Chinese domestic assets into a foreign country. It goes further to describe it as the economic activities, which earn the Chinese domestic investors at least 10% of voting power in the host country enterprises. According to the United States Economic Analysis, the FDI calculated refers to the ownership by one foreign person of at least 10 percent of the voting securities of the business enterprise in that country.

However, the benefits of the investment are two sided, for instance, there are benefits that are accrued by Chineses labourers who are taken to work abroad, and this is the fundamental advantage of the technique to the Chinese labour market. This can also be interpreted as the ability to create extra sources of income as well as placement opportunities for the Chinese nationalists. But what is the negative implication of the investment on the home labour market? Are Chinese nationals moving from home jobs in favour of the ones found abroad? This could be a possible scenario; moreover, there might be a reduction in the available labour force due to the preference of the foreign market by the Chinese people. This is because if the exciting prospect that foreign employment offers.

Faced with these drawbacks in mainland labour issues and the threat of spilling in the international front regarding chinas direct foreign investments, the Chinese eldership and strategic planners are now evaluating the possibility of incorporating labour in the strategic objectives of the nations direct foreign investment plan. The question is whether labour should be taken as a factor of production and also introduced in foreign nations or not. The agreement on these issue has not been achieved because of the surrounding issues, for instance, what will be the implications of exporting home labour on the local Chinese markets and labour pool. In response to this, there have been various statements which allude that the labour exportation will help free the local congested labour market. Despite the statement seeming actionable and well researched, it has not been considered as one of the options of resolving the existing labour stalemate.

The Chinese ODI is now concerned with quality development rather than quantity growth. This includes investment in new sectors, which are beyond reaches such as high technology, real estate especially in developed countries and agriculture (Iqbal, 2014). Regarding labour, there are increased efforts to train labours as per the international requirements. Moreover, issues of cultural competence are now of important focus regarding the labours. This is because of the need for them to traverse various cultures if they want to fit in the national programme of foreign direct investment.

By 2014, China had seen an improvement of deals regarding established brands and advanced technology in the developed countries such as Australia, Europe, and US (Clegg, 2013). This is different from 2010 where only four deals were struck in the developed countries. The move from natural resources interests to technology and other areas is bound to boost the country transformation for sustainable growth in labour, capital and financial endowment.

It has also been noted that focus of China has shifted from quantity and speed to quality and efficiency. An increase in industries related to value addition such as high technology and agribusiness are also expected to increase in the coming years. The Chinese high population has been the major drive of the ODI. This is because of the limited resources such as food and land. With the population expected to increase, the Chinese government has encouraged all companies including the private companies to seek overseas market while enhancing their position in the global market, this goes hand in hand with the Chinese labour force. This will give them access to more resources to sustain the billion plus population. In the same dimension, the labour market has to improve; this is because it will seem unrealistic and ill-founded for China to insist on quality and increased efficiency in foreign markets yet the home labour is inefficient and cannot fully cater for the skill requirement within the nations borders leave alone beyond.

Effects of Foreign Investment

In analysing the effect of chinas direct foreign investment, two target states have been used as a basis for these effects; the states are varied in many aspects, right from their economic status, social makeup and they have two completely different sets of economic environments. Using the two is important in providing analysis of the direct investment relation to the conditions present in the nations which China is investing in. Therefore, the effects have been based on the Chinese investment in the United States since its is one of the nations that China has focused greatly and one African state.

Through Chinese investments in the US, there are several effects in the social and economic sectors. To begin with, there has been the creation of jobs in the United States while maintaining its own jobs. This has reduced the rate of unemployment creating a more conducive environment for thousands of graduates annually. Also, there has been the improvement of the social ties between these two countries, which are considered developed. Therefore, labour has been able to be transferred between the two nations. Also, this has improved the US social reputation earning its trust in other countries as it invests in foreign nations as well (Hanemann, 2013).

Economically, growth has been visible through capital accumulation, which has enabled to finance the domestic investments. This has reduced the debt rate from other countries creating a stable economy for the country. The United States depend on these foreign investments to generate net benefits for the country, which increases the countrys savings. It has also been shown that foreign investors pay higher than the host countries, which creates a stronger economy with the money circulating in the country.

The Social Impact of Chinese Foreign Investment on Home Labour Force

Despite most jobs being casual jobs by foreign firms, they have provided employments for the citizens thus reducing factors such as crime rates and improving the lives of the workers socially. Also, there has been an introduction of improved infrastructure and technology, which has seen the improvement of the social lives of workers. Through increased funds generated by these foreign Chinese investment plans, they can build schools for higher education, which was not available in the past. This higher education will offer improved training to workers. Other social amenities may comprise of churches and hospitals, which improve the livelihood of citizens in general and more specifically, the working population.

The ties between countries have also improved as a result of direct investment efforts by China which has opened ways for other investors in the target countries especially those who are still developing such as Malawi. Also, the transfer of skills and technology to citizens is beneficial in developing the country since Most of other Nations are dependent on the foreign investors to develop. The effect of the improved relationship has also been felt by the ability target nations citizens to travel to China for visits, which they seem to enjoy. Improved infrastructure also has an impact on several sectors such as tourism and transport, which are all related to social impact. These visits also have had a working dimension to it, a fact that could strengthen the Chinese labour force.

The Economic Impact of Chinese Foreign Investment on Home Labour Force

This is the most evident impact through an increase in the economic growth. This has been made achievable by the expansion of the markets created by the Chinese Firms on their products. The provision of external market boosted this investment creating a stable economy for the country. Employment of workers also in these companies has an impact on the national economy since the salaries and wages revolve around the state creating a healthy economy (Lall, 2013). These Firms also come with other facilities such as technology and infrastructure, which also plays a vital role in the economic sector.

Conclusion

There are many factors which affect business activities and the overall economic environment in China. The activities could be negative or positive regarding the nature of the impacts they cause; one such factor is the increased development of China that has led to increased interest in the international and foreign markets. It is a plan that China sees as a possible economic booster as it will offer markets for most of the Chinese products as well as goods from the host nations. The plan will also involve the transfer of Chinese assets to foreign nations. Therefore, the plan will have an effect on the labour force in China, for instance, will the Chinese labour be required to work on their nation's foreign investments or not? These questions in conjunction with the likely shift in investment patterns have seen chinas labour force express desire to work abroad. This has come with enhanced training for the workers to suit the international markets. Labour unions, on the other hand, are pushing for increased considerations of the workers under these new developments, however, what remains of concern is whether the Chinese national government will succumb to these pressure and incorporate part of their labour force in the foreign direct investment plan or not.

References

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Amighini, A., Rabellotti, R. and Sanfilippo, M., 2013. Chinas outward FDI: An industry-level analysis of host-country determinants. Frontiers of Economics in China, 8(3), pp.309-336.

Anderson, J. and Sutherland, D., 2015. Developed economy investment promotion agencies and emerging market foreign direct investment: The case of Chinese FDI in Canada. Journal of World Business, 50(4), pp.815-825.

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Damijan, J.P., Rojec, M., Majcen, B. and Knell, M., 2013. Impact of firm heterogeneity on direct and spillover effects of FDI: Micro-evidence from ten transition countries. Journal of Comparative Economics, 41(3), pp.895-922.

Hanemann, T., 2013. Chinese FDI in the United States: Q4 2012 Update.Rhodium Group, January, 16.