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Foreign Direct Investment: Always A Good Choice

1206 words - 5 pages

Since the beginning of the 1980s, foreign direct investment has been growing significantly throughout the world, and it has helped spur economic development and globalization. At the same time, China, as a representatively developing country, has merged into the world economy with amazingly high speed and become the second largest recipient of foreign direct investment in the world (J.Ying, personal communication, February 24, 2014). Reforms in the economic structure have gradually occurred throughout China since foreign investment has been playing an increasingly vital role in the economy. Thus, a large and increasing amount of discussion and analysis are focusing on the impacts of foreign investment on China’s domestic economy (Lau, C., & Garry, B, 2008). Recently, some people have argued that there are some cues implying a sluggishness in the foreign investment in China, and the role of the foreign investment as a contributor to Chinese net exports, industrial output or tax revenues is no longer as important as it used to be (Jia, 2011). Some even suggested that instead of assisting in expanding markets, the foreign investment had begun to exert negative impacts on China’s domestic economy. Nonetheless, in my opinion, foreign investment is still a crucial element of the Chinese economy, and it is exerting positive impacts on this system. In this paper, I will prove my point of view from three aspects. Firstly, foreign investment is promoting the development of Chinese economy. Secondly, foreign investment is benefiting Chinese economic balance. At last, I will reject the opponents’ view by demonstrating that foreign investment is encouraging the development of domestic enterprises.

According to my analysis, foreign investment enterprises are always playing a role of promoting the development of Chinese economy. Specifically, Gross Domestic Product (GDP) is a decent measurement of a nation’s economic wellbeing, and net export is one of the important elements of GDP (Mankiw, 2012). During the last decade, China has achieved a number of remarkable results in the developing domestic economy with an average GDP growth rate of 10.7 per cent (NBS, 2012). What is more, Lau & Garry (2008) pointed out that foreign investment has been the core of China’s international trade expansion. Hence, it is appropriate to attribute China’s outstanding economic growth to foreign investment enterprises’ international business activities. Although, some evidence implied that the rapidly climbing contribution of foreign direct investment had achieved a balance (Davies, 2013), those multinational enterprises are actually experiencing a transformation of their marketing patterns. Previously, foreign investment enterprises were concentrating on a limited number of labor intensive manufacturing products since inexpensive labor cost led to a structural strength in international trade (OECD 2000). However, new comparative advantages have emerged in the most rapidly...

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