Foreign Direct Investment

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Foreign Direct Investment

Abstract        

        With the development of global economy and the globalization, Foreign Direct Investment (FDI) has become one of the major form of international capital and technological transfer in current global economy system. In this paper, I will first compare how FDI develop in the two largest FDI countries, China and US. Then, I will analysis the advantages and disadvantages about FDI and the latest trend of FDI, as well.

Introduction

        Since World War II, globalization posted steady increases everywhere in our daily life. Nowadays, the changing of economy in one country always influence the economy around the world. The global economy system is affected by Foreign Direct Investment (FDI), defined as “cross-border expenditures to acquire or expand corporate control of productive assets. FDI was first become a major form of net international borrowing for Japan and the United States (the wold’s largest international leader and borrowers respectively)”(Kenneth). Since China, a developing country, takeover US, a developed country, to be the top destination for FDI in2014, the issue of FDI is more important to the global society. Every day, companies establish new operations in foreign countries or provide additional capital to established businesses.

FDI in China VS in US

        In 1979, China began the FDI. Chinese government published several policies that agree the Chinese companies can extend their business to other countries. In October 1979, Chinese did the first FDI with a Japanese garment company. The successful investment and external interest bring a good beginning of FDI in China.

        However, from 1979 to 1984, Chinese FDI was limited due to the unopened policy. Only some professional companies with the right of foreign management could operate FDI. Those companies mainly invest the business in Asia, especially Southeast Asia, by creating agencies in these foreign countries and sold specific goods. Some international technology cooperation companies owned by the local governments also had the permission of FDI. These companies’ main market was mainly in the Middle East and Africa. They cooperated the engineering program with the local companies.

        Obviously, the tentative investments was successful. FDI extended quickly in next 5 years. To simplify the communication between the FDI companies and the government, China set up China Association of Enterprises with Foreign Investment (ACEFI). With the help from ACEFI, more private manufacturing enterprises and scientific research companies set up business in foreign countries. Additionally, the main market extended from minority ASEAN countries to all over the world. Because of the diversified subjects and fast development of the productive investments, until the end of 1990, China built 801 non-trade overseas companies in 93 countries around the world, including 109 companies in USA.

        From 1991, Chinese government published more policies to help develop FDI and encouraged more local small business invest business globally. At that time, Chinese FDI extended in more than 140 countries. Accounting to the calculation from Chinese Commerce Department, by the end of 2003, Chinese FDI  net amount was US$33.2 billion, increased dramatically from US$3 billion in 1991.

        In the recent ten years, FDI in China increased continuously, from US$74.768 billion in 2007 to US$126.27 billion in 2015. The strongest increasing happened between 2007 to 2008, from US$74.768 billion to US$92.395 billion, and 2009 to 2011, from 90.03 to 116.011 billion. And China’s net FDI reached the highest point at US$124.90 billion in 2010. The data decreased slightly between 2008 to 2009 and 2011 to 2012 due to World Economic Crisis. From the statistics by the Ministry of Commerce of the People’s Republic of China, “Foreign Direct Investment in China increased by 354.20 USD HML in March of 2016. Foreign Direct Investment in China averaged 415.77 USD HML from 1997 until 2016, reaching an all time high of 1262.70 USD HML in December of 2015 and a record low of 18.32 USD HML in January of 2000.” (Trading Economics)