Introduction
All Millennium Development Goals have been achieved or are in the process of being achieved in China. It is experiencing economic success because it has moved from being centrally based to a market based economy. This has led to huge economic and social development, lifting more than five hundred million people out of poverty. Being the country with the largest population on earth (1.3 billion or more people), it is the second largest economy and is directly affecting the global economy.
China being the largest exporter and second largest importer of goods in the world, it has the largest manufacturing economy in the world which calls for more labor since the World global market depend on it. The phenomenal rapid growth of the economy gas affected the growth and structure of the employment rate. In the 90s, there was increase in urban employment since private and public enterprises emerged after china becoming a market based economy.
There is a large working-age population but on the other hand, the average educational level of the people is relatively low, causing unemployment issues. This is mainly demonstrated in the co-existence of the contradiction on total volume of workforce when it comes to supply and demand, and also the contradiction of employment structure. Many citizens qualify to be laborers in the agricultural sector but not nonagricultural sectors. When they move to the urban centers and get employed eventually, chances of being laid off is high causing uncertainty in the workforce. This has been a problem for a while but citizens are improving greatly and becoming skilled personnel.
Literature Review
China has opened itself to world economy and has joined the World Trade Organization (WTO) which deals with the global rules of trade between nations, ensuring that trade flows as expected. This increases China’s integration power to the world economy therefore, expanding its international trade and foreign direct investment opportunities.
In the early 80s, China had restricted foreign investments to export oriented operations and made it a necessity for the foreign investors to form a joint venture partnership with the Chinese firms. This allowed foreign involvement in a good number of sectors in the country. This became much better after the decision was reformed and foreign investment was legalized. Since then, capital inflows increased each year and research shows that, close to 60 percent of China’s imports and exports are there courtesy of Foreign Direct investments (FDI).
Foreign Direct Investment in China has attracted larger numbers of investors compared to other economies due to their skilled workforces and good growth aspects. The government of China has allowed the investors to do business in its domestic markets, provided security concerning nationalization, allowed foreign partners to take over and chair some of the joint ventures and authorized ownership by investors. This is freedom to market and trade freely. Thus, the FDI in turn has increased employment rates in the country promoting the domestic market and the state of living of many.
FDI in China
In the year 2003 alone, China attracted $117.6 billion foreign direct investments. It still maintains the position of the second largest economy. The growth is expected to rise because of the country’s huge domestic market, its strong infrastructure, the relatively stable social system and the skilled labor force. Industries like Automobile sector, has been dominated by the foreign investors who are seeking official ownership. China is reluctant to do so since it is trying to develop the domestic automobiles. As much as FDI is bringing growth to the country, it is clear that it does not want to lose a grip on the sector.
For a foreign to invest in china, he/she has to go through an authorization procedure that has to be approved by the government. This is to prevent fake deals which might cost the country. The investor needs to write a proposal to the relevant department before doing anything in the country, submit a report that shows the investor has done an extensive research. This should be done before the investors sign any legal document or contracts. The examination and ratification department issues an approval after reading the contract, which also goes through the Ministry of Foreign Trade and Economic Cooperation. The investors can therefore go through registration procedures with the administration of industry and commerce.
FDI IMPACT ON ECONOMY
For the past two decades, China’s economy has been transformed because of FDI. The interdependence with the world economy has seen the country improve. The following are the clear contribution of FDI in the country’s transformation and growth.
There is increased Weight in Domestic Economy. Despite of the size of the Chinese economy, the Gross National Product has increased annually by 9.5%. The Table 1 shows the FDI increase from the late seventies to the late nineties. The gross capital information is higher than other Asian economies which were at per with china. After China’s economic reform and open economy, initiatives funded by external investment are the most important and dynamic part of the economy increasing the country’s GDP.
FDI increases the country’s ability to attained Fixed Asset investment. Foreign asset investments sources add up to 7% while China’s id 5%. This helps in terms of capita; accumulation in nation. Enterprises funded by foreign investment become part of china’s total investment and fixed assets. The level of fixed assets invested by foreign investors indicates that their level of commitment and confidence that there is hope in earning more income, this means, productivity levels have to be high in one way or the other.
Moreover, increase in FDI leads to increase in foreign trade. China’s relationship with the rest of the world has led to its massive growth over the years. It is an expert when it comes to exports. In the past 20 years, china’s total trade summed up to more than 475 billion US dollars. Correspondingly, increase in trade increases the country’s GDP. The government’s policy has contributed too since its main aim is to promote exportation. Generally, china’s exports more products than it imports and that leads to good economic growth in a nation.
Economic transformation is guaranteed when FDI is embraced in an economy. It is evident that the massive China’s economy transformation came from the centrally planned economy to a market based economy which consists of various ownership form different investors. Foreign Investment Enterprise (FIE) has contributed to the positive makeover industrial sector. More interaction with FIE and the government helps to facilitate the development and market discipline hence transforming economy.
The world is headed to a hi-tech economy. The possibility of accessing modern and foreign technologies make nations want to interact with as many countries as possible. The use of technology between two or more companies in different countries has to be integrated hence something new and better is learned in the process. In fact, when dealing with foreign investors, technology is the main mode of interaction. Direct technology transfers from multinational corporations to local companies gives those companies an experience and access to technologies that would cost them huge amounts of time and money to produce. They also benefit from it because they have to be trained to use that kind of technology.
External financing, especially from World Bank, has been a major source of finance to China. At the early stage of market based economy, main source from foreign capital happened to be foreign loans. FDI has therefore led to the foreign loans which is one of the main sources of finance to the China economy.
FDI IMPACT ON EMPLOYMENT
Generally, it is presumed that foreign firms come with a lot of employment opportunities. This owes to the fact that the foreign companies have firm characteristics such as high capital power and productivity. And also, the fact that they are in China, it is expected that some if not most of its employees should come from China because of their knowledge and experience as a citizen.
The establishment of new industries and firms in the country increased employment. This was possible especially if the foreign firms established relations with domestic companies maybe through sales and purchasing. On the downside, the impact of FDI may increase the unemployment rate of the domestic workers in that, if the foreign firms are increasingly competitive, the domestic firms will not be able to survive the market hence, they will be forced to exit or retrench some of their workers.
Most Chinese workers are in the informal sector and close to 65% of them do not have household registrations which make them unqualified from the formal job markets. Firm ownership is important for job creation in that, the private sector, foreign owned companies included, cannot employ the same number of people the same way a public sector does. A number of researches have shown that most foreign investing companies pay higher wages than the domestic companies hence most people prefer working foreign companies. They therefore have to make sure that they are qualified to be marketable.
Usually, foreign companies create jobs especially, ones related to technology. This is because, FDI depends highly on technology. The employees therefore have to be trained in order to work effectively and lead to the productivity of the company. As much as the government approves of the FDI coming into the country and creating employment opportunities, China has an active employment policy stating ‘workers finding their own jobs, employment through market regulation and employment promoted by the government’. This is because that government is insisting and persisting on developing the economy. It wants to curb the unemployment rates and expand the employment possibilities.
The government has effectively developed flexible and diverse forms of increasing avenues of employment by encouraging more FDI opportunities. It encourages the laborers to go extra miles and do whatever they have to do in order to attain qualifications for the FDI job opportunities. High use of technology by FDI influences other domestic companies to embrace the new way carrying out activities. This may demand that the number of laborers should reduce since they have been replaced by technology. For instant, market research in that, the people who used to do this job can easily is replaced by the use of internet on created websites, or even, warehouse automation which don’t require the physical labor of someone.
Conclusion
Foreign Direct Investment is indeed one of the major reasons as to why China is experience massive economic growth since twenty years ago. The decision to open up its market to foreign investment has made it the largest recipient of foreign capital. There is some part in the country which is not overly active when it comes to FDI. The decision has seen the country trade all kinds of activities and services with the rest of the world. This has led to increase in its GDP which is every country’s goal every year. Indeed, without FDI, China may collapse considering its high population of people.
As much as it has improved the economy, it may not be the same for job creation since most of the Chinese are either employed in the informal sector or unemployed. China Government should not focus too much on developing its economy through the use of FDI, while its citizens are wallowing in unemployment. It should come up with strategies to blend the two so that, as the economy is growing, job opportunities may arise. “If China relaxes, foreign ownership will take over, hence losing its known brands, killed in the cradle," it said earlier this month. On the other hand, other nations should learn from China and embrace FDI. Most of all, they should exploit its resources so that the exports may exceed the amount of imports to lead to economic growth. China is headed to a better place though at a slower rate because there is increase in competition at the global market.
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