Foreign Direct Investment in China

Furthermore, in 2008, China was the second largest U.S. trade partner, its third most principal export market... ... middle of paper ... ... producer would be also convenient for the consumer. Cooper (2006, p 11) points out that People’s bank of China which is the China´s central bank might be considered as one of the main evidences related to the risk that represents the fact of having an “undervalued” currency. PBC (People´s bank of China) is playing a high role in the foreign exchange market, in other words, PBC is managing China´s reserves and dominating them by the control of capital flows inside and out of the Chinese territory (Cooper p11). Following this concept, high savings rate in China may be determined by the limited opportunities that citizens have to invest and also by the controlled banking system. Indeed, it is believable that without capital´s control, the Chinese currency would be floating, thus can be appreciated or depreciated by economical pressures but not by bank`s policies.

China, a country with a population of over 1.3 billion, has made a great change in its economy over the past three decades (Morrison). China is the most populated country in the world occupying about 20% of the total world pollution. Its government, the Communist Party of China has been ruling the country for over 63 years since 1949. China has shown a great change in its economy starting from 1978. It has become one of the world’s fastest growing economies ever since (Wiki answers).

From the 1970s, there has been a wave of liberalization in China, which was introduced by Deng Xiaoping. This is one of the key reasons to the rise of China to be one of the economic giants in the world. In the last 25 years of the century, the Chinese economy has had massive economic growth, which has been 9.5 percent on a yearly basis. This has been of great significance of the country since it quadrupled the gross domestic product (GDP) of the country thus leading to saving of 400 million of their citizens from the threats of poverty. In the late 1970s, China was ranked twentieth in terms of trade volumes in the whole world as well as being predicted to be the world’s top nation concerning trading activities (Kaplan, 53).

US-China share a significant relation in terms of trade which has expanded substantially over past three decades. This can be understood by the fact that total trade between U.S and china grew exponentially from $2 billion in 1979 to staggering $562 billion by year end of 2013. Currently China is United States second largest partner in terms of trading, its third-largest market for export, and its biggest import source. With a total estimate of approximately $300 billion China is one of the biggest market for U.S. firms (this fact is based on U.S. exports to China and sales by US firms which have significant investment in China). In fact for many companies it is important to participate in China’s market to stay relevant and competitive in current business scenario.

By the early 20th century, comparative advantage was presented all throughout their economy (Yan, 2014). The Chinese economy had many transformative effects due to WWI. One of the main reasons as to why this happened was because it challenged trade in the many other places in the world, offering many different beneficial aspects to the Chinese economy. China’s exports saw a dramatic increase because of this. Exports between countries like the United States increased at a substantial rate, starting off at an annual rate of 6 percent before WWI, dramatically rising to 27 percent after the war began (Yan, 2014).

As long as wages are low, the United States will continue to gobble up products made in China, while Chinese consumers will prefer to buy cheaper, homespun alternatives to American products. The rise in trade deficit with China has come at a cost to jobs in the United States, accordin... ... middle of paper ... ...Institute in Washington who served as a staff economist for President Bush's Council of Economic Advisers. And with oil prices rising again, said Ashraf Laidi, chief currency analyst for the MG Financial Group in New York, "we can expect to see worse numbers to come." http://www.nytimes.com/2006/02/11/business/11trade.html?pagewanted=print Works Cited http://www.americanprogress.org/issues/2004/09/b193700.html http://worldnews.about.com/od/china/a/china_trade.htm http://goliath.ecnext.com/coms2/summary_0199-3700728_ITM http://worldnews.about.com/od/china/a/china_trade.htm http://www.epi.org/content.cfm/webfeatures_viewpoints_tradetestimony http://www.epi.org/content.cfm/bp188 http://www.census.gov/foreign-trade/balance/c5700.html U.S Census Bureau Foreign Trade Statistics http://www.nytimes.com/2006/02/11/business/11trade.html?pagewanted=print

With this powerful advantage that China has, its promising future does not seem that far away. The graph to the left shows the US merchandise trade with China. As you can see, the US exports to China have fallen and its imports from China have increased greatly from 1994 to 2004. With its 4,000 skyscrapers in the financial capital, Shanghai, and the ever rapidly growing economy, China might just do more than “catch up” to the United States. It may seem ironic that the country that has a replica of our “42nd st” would also be in growing competition with our economy and it may also seem like China is the “little brother” of the US, but how long will this go on for?

However, this Chinese economic model is slowly readjusting the region back to its pre-1970’s state of over-dependence on commodity exports. In addition to becoming a major trade partner in the region, China has become a financial investor in the nations so heavily that many fear China will soon surpass the United States as the major player in the region. China is rapidly increasing its involvement in the region. Over the past few years, Chinese trade has increased around 30% each year to meet their demand/need for raw materials. In 2010, “China’s share of the regions trade has reached 20%... up from just 1% in 1995.” (Stier 259) This increase has made China the top trade partner for Brazil, Argentina, and Chile and a leading partner in many other Latin American and Caribbean nations.

In 2001 China entered the WTO it has made major stride in the world economy especially with trade agreements with the biggest capitalist economy and the biggest GDP and most developed country in the world the United States of America which has nearly 2.3 trillion of exported goods and service in 2013 (President, n.d.) When China entered in the WTO it had become the sixth largest economy and the largest market trade and was slightly ahead of Italy and just behind France. “China is third largest trading partner with the U.S and its trade surplus with the U.S. has increased to $201 billion around 2005 and by 2014 the total China-U.S. trade deals was 591 billion”. (Morrison, 2015) It had a global current account of $160 billion around 2005 (Hufbauer, Wong, & Sheth, 2006). As of 2015 “China is the U. S’s second largest trading company and the third largest export company and its biggest source of import”. (Morrison, 2015) Sales from a foreign affiliated U.S. firms in China totaled at 364 billion by 2013.

Since implementing majority of its WTO commitments in 2007 and through the ‘open door policy’, globalisation has allowed China to attract high levels of foreign direct investment, as transnational corporations have established production facilities in major cities. The impact of this can be seen as total FDI was valued at US$116b in 2001. Additionally, this has improved QOL by created substantial employment opportunities particularly in China’s manufacturing sector; 2,500,000 people migrated from Eastern to Western China between 1995 and 2000 to improve their QOL. Individuals have also received increases in real wages, appreciating 300% from 2001 to