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BUS243 Chinese Business Case Study

   

Added on  2020-05-16

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Running head: CHINESE BUSINESSChinese businessName of the studentName of the UniversityAuthor note

1CHINESE BUSINESSIntroduction:During the last two decades Chinese economy has faced remarkable growth and rapidtransformation in their economy. With the help of the Open Door policy by the Chinese centralgovernment during the 1978, the Chinese economy has started to integrate itself with the globaleconomy (Huang et al. 2016). China started to participate in the international trade in greatermagnitude and within three decades it becomes the second largest country in economic terms inthe world. With the accession of Chinese economy in the world trade organisation (WTO) thegrowth rate accelerated to a great extent (Hopewell 2015). With higher Ease of Doing Businessindex, china gained huge amount of Foreign Direct Investment (FDI) from the westerneconomies that has aided the economy to become where it is now (Ahmad, Musheer and Singh2017). However, during the last one decade, a special phenomenon has arisen in the case ofChinese economy, where the outward Foreign Direct Investment (OFDI) of the country hassuppressed the Inward FDI of the Chinese economy. This has highlighted that china is movingtowards from a loan taker to loan giver through transforming itself into an investor (Chang et al.2016). Despite the fact that OFDI of the Chinese economy has been rising subsequently over theyear, various Chinese organisations has fall short of their objectives. Thus, it is important todiscuss about the OFDI of the Chinese economy and trace out the factors that are affecting it.This essay will provide a framework that will discuss the OFDI activities of the Chineseeconomy and it will highlight various motivating factors of the same. Besides this, the essay willhighlight the Chinese OFDI growth path and try to forecast the future of Chinese economy whichis aiming to become a global investor. Chinese OFDI growth path:

2CHINESE BUSINESSTraditional perspective of the FDI from the developed nation argues that it is sourced bythe developed nations in order to exploit the cheap raw materials and labour in the developingnations. However, when it comes to OFDI, then it differs fundamentally. Owing to the fact thatmost of the outward FDI of the developing nations are disbursed to the developed countries witha substantial portion to the developing economy it aids to identify strategic assets (Xiongfeng etal 2016). Besides this, OFDI from the developing nations like china it aids to find out managerialand technological skill instead offering them superior technology grown in the home nation.When it comes to Chinese economy, then it has been observed that the country has fostered itselfas one of the fastest growing economy with an annual growth rate of 6.7% (Blanchard, Oliverand Francesco 2016). According to the (Naughton and Barry 1996) with ever increasing amountof international trade, the country has become one of the nations that has highest amount offoreign exchange in its reserves. Besides this, statistically there has been substantial growth inthe GDP of the country during the last two decades, which has aided the nation to become whereit is now. Moving forward, it can be seen that these key factors has aided the country to have higheramount of the OFDI. From figure 1, it can be seen that Chinese economy has increased its OFDIlargely over the period 2000 to 2013. As one of the emerging nations, the country has increasedits OFDI from 2000 to 2013 by 44% ("MOFCOM Department of Outward Investment AndEconomic Cooperation Comments On China’s Outward Investment Cooperation In January-October 2017 -" 2018). According to the same source, Chinese OFDI has increased by 14.1%from the previous year to the 102.9 USD; whereas the inward FDI increased to 119.6 billionUSD by 1.7%.

3CHINESE BUSINESSTill 2013, most of the Chinese OFDI was aimed towards the Asian economies, however,over the time china has reduced its investment to 50% in this region ("The Story Behind TheShine | Michaelhill.Com" 2018). With higher amount of capital and monetary stock, theeconomy has become potent enough to penetrate the European economies. Presently, Europeancountries have become the second largest recipient of the Chinese investment and it has giventhe china an upper hand to diversify its investment further leading towards greater sustainability.Figure 1: OFDI of emerging economiesSource: ("China’s Overseas Investments, Explained in 10 Graphics | World Resources Institute"2018)Figure 2 suggests that OFDI from Chinese economy is highly concentrated towards theAsian economy. Almost 68% of its OFDI is directed towards the Asian economy and secondlargest share of the outward FDI of Chinese economy is enjoyed by the Latin America("MOFCOM Department Of Outward Investment And Economic Cooperation Comments OnChina’S Outward Investment Cooperation In January-October 2017 -" 2018). Natural resourceseeking tendency of the Chinese economy has provided the economy a stimuli to have higherlevel of OFDI, though the per capita resource availability is much lower. Thus to ensure constant

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