Essay on Current Foreign Direct Investment Fdi

Essay on Current Foreign Direct Investment Fdi

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1) The article discusses about current foreign direct investment (FDI) activities in China and how the devaluation of yuan has impacted the inflow and outflow of FDI in China. The article reports that in China FDI fell by 5.8% in December from a year earlier to 77 billion yuan ($12 billion). FDI can be defined has when a firm invests directly in new facilities to produce and/or market in a foreign country. Additionally, FDI leads the firm to become a multinational enterprise (MNE).
As discussed in the lectures, FDI can be done various ways such as Greenfield investments, Cross-Border Mergers and Acquisitions (M&A) investments, and finally Brownfield Investment. China’s FDI consists largely of Greenfield investment, while inward FDI in the U.S. by contrast has been generated more by takeovers of existing enterprises rather than develop new establishments. Greenfield investments take place when a company establishes a wholly new operation in a foreign country where as M&A take place when a company purchases an existing business. The article states that, “An estimated $843 billion in capital left China between February and November”. Furthermore, at the start of 2016, Chinese companies have pulled of two major acquisitions in the U.S. General Electric Co. agreed to sell its home-appliances business to Qingdao Haier Co. for $5.4 billion and billionaire Wang Jianlin’s Dalian Wanda Group Co. agreed to spend as much as $3.5 billion to take over the Legendary Entertainment production house (as stated in the article). Both of these are M&A type of FDI rather than Greenfield FDI.
Additionally, we considered two main types of FDI, which are horizontal FDI and vertical FDI. Horizontal FDI happens when the affiliate replicates the producti...


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...avorable exchange rate movements . Any company outside of China, dealing with any Chinese company will have to compensate for the FX risk. In this case, the depreciation means that Chinese Renminbi it is worth less and $1 USD can buy more Renminbi. Depreciation impacts FDI because (as stated in the article) the “foreign investors tend to delay their investments in the face of strong depreciation expectations”. A weaker yuan has impacted businesses all around the world. The global economy is highly dependent on the Chinese economy and the Chinese consumers. Therefore, a!weaker!yuan!is!feared!to!drive!the!global!economy!closer!to!a!recession as!the!purchasing!power!of!the!world’s!second!largest!economy!deteriorates!every!instance!Renminbi!is!devalued. Exchange rates play a fundamental role in FDI and therefore, monitoring USD/CNY is going to crucial in coming months.

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