Many factors impact the Chinese economy in terms of growth and sustainability. One of the most significant factors is foreign direct investments (FDI) and foreign investment enterprises. According to Tang (2010), in the last two decades (1980-2009), there has been an outstanding expansion of foreign direct investments and foreign investment enterprises which have impacted the Chinese economy significantly. This is a new trend that has not been witnessed in China for quite a long time. These foreign direct investments and foreign investment enterprises have led to an increase in China’s trading capacity, industrial quantities, and created millions of jobs within the country (Kennedy 2005). China’s currency has also been lowered by the increase in FDI. Lately, many multinational companies have invested in China through their holding companies which are located in tax haven countries such as the Virgin Islands, the Cayman Islands, and Western Samoa (Kennedy 2005). Provinces on the coast such as Jiangsu, Guang dong, Fujian, and the city of Shandong are the most popular places in China for foreign direct investments (Zhiguang 2006). These provinces have received a huge amount of foreign direct investments because they are considered as preferred investment locations by the Chinese government. China has a rapidly growing economy and a massive consumer market, which has attracted FDI. This paper will highlight the impact of globalization on growth in China’s economy.
Zhang (2007) stated that the “Chinese global city-regions are characterized by massive inflows of FDI, active foreign trades, an increase in export-based manufacturing, a well-developed infrastructure of transport systems, and a dense concentration of migrant laborers. These rapid and concentrated urban economic growths have resulted in the juxtaposition of industrial, infrastructural, and residential land uses occurring not only outside the principal city cores but also between major urban and peri-urban areas, which, practically, cannot be easily classified as either urban or rural”. Based on this information, it is clear that the above information can be relied on.
Moreover, the growth of globalization has led to openness in international markets, thus leading to rapid economic growth (Allan 2006). China is among the few countries across the world that benefitted a great deal from commercial globalization. Foreign investments have gained a great boost from globalization (Allan 2006). The increase in foreign investment has encouraged many countries to introduce new trade policies to attract foreign investments. This is about the great effects of foreign investments on economic growth. The Chinese economy has been greatly impacted by the current trends in globalization over the last two to three decades (Allan 2006). Over the last three decades, tremendous changes in the Chinese economy have been witnessed due to globalization. The Chinese economy is second after the United States and is a leading destination for foreign direct investments (Pogge 2008). The rapid economic growth can be attributed to the forces of globalization, which has boosted foreign investments (Pogge 2008). By 2004, China had maintained an increase of 19.7% in foreign investments within the country and foreign investments accounted for 10% of its total fixed asset investments (Rhys 2010).
Globalization has helped China to integrate with the global economy, thus, boosting foreign trade and, at the same time, sparking economic growth (Pogge 2008). The rapid participation of China in international trade, mostly in Latin America, has not only had economic impacts but also political implications. Globalization has enhanced competition and specialization in China. According to Rhys (2010), this has positive effects on the economy in terms of increased foreign investment and demand for products. Through globalization, China has been able to review its trade policies. Rhys (2010) also states that the removal of inefficient foreign investment restrictions from the 1980s has encouraged export operations. Foreign investment restrictions hinder the growth of import and export business in many countries (Rhys 2010).
The Chinese trade policies have experienced deregulations, and the introduction of new policies has led to an upsurge in FDI (Fulong 2002). Some of these trade policy changes include the authorization of wholly foreign-owned enterprises, and the elimination of certain trade-related restrictions such as the requirement for domestic content, foreign exchange balancing, and technology transfer (Augimeri 2001). Many of these changes took place in 2001 after China joined the World Trade Organisation. The entrance of China into the WTO reduced the risk of investing in China because the operating environment became more transparent and predictable (Augimeri, 2001). A favorable investment environment attracted many foreign investors. According to Pogge (2008), these developments have a strong influence on economic growth since foreign trade is facilitated.
Globalization has come with deregulation of foreign investments, thus, encouraging more foreign operations (Tang 2010). The incentives provided for investments in different industries and regions have also had a profound impact on economic growth (Zhang 2007). For instance, technological and agricultural sectors have been prioritized in government incentives which, in turn, boost economic growth. Fulong (2002) asserts that this is associated with globalization, whereby, Chinese firms are aiming at producing high quality and affordable products and services for competing in global markets.
The integration of China into the world economy has led to a robust increase in foreign trade. According to Augimeri (2001), globalization has led to liberalization and decentralization of foreign trade thus encouraging helpful competition. The reforms in foreign exchange regimes are also of great significance in economic growth, whereby, it has led to increased Chinese participation in international trade (Augimeri 2001). Other key aspects affected by globalization include the removal or lowering of tariff barriers. Augimeri (2001) states that the developments in China have a significant impact on foreign investment and trade. The rapid economic growth of China can be attributed to the integration of the country’s economy into the world economy (Zhiguang 2006). Globalization should hereby be embraced as an essential factor in economic growth. Globalization has made China become an economic powerhouse within a very short period (Augimeri, 2001).
Another major factor that has led to China’s increasing influence on the global economy is its entrance into the World Trade Organisation (WTO) (Zhiguang 2006). Before joining the WTO, Chinese manufactured cars were expensive and low in quality. Chinese imports were also extremely expensive with a 200% tax imposed on imports. As a member of WTO, China has opened its market to foreign investors (Allan 2006). Also, regulation, such as a cut in tariffs on imports, has allowed an increase in the number of foreign goods sold within China, which has stimulated the economy by encouraging competition in the Chinese market, therefore, leading to price reductions on commercial goods (Tang 2010). China’s WTO membership has also increased the country’s awareness and knowledge on the importance of management and technology (Tang 2010). A policy introduced by the government allowed foreign investors to have a 50-50 joint venture with local companies. In addition, with cheap labor costs and collaboration with local government, China is considered to have the best location for factory projects (Allan 2006). Foreign companies have invested over $600bn in the Chinese economy since 1979 when government deregulations were put in place. Within the last 10 years, China has overtaken Germany and is now the largest export country in the world (Tang 2010). The phrase “Made in China” has become common all over the world. However, when one country gains from export, another country loses its exports. The Chinese government has been criticized for manipulating its currency to attract investors, thus, making its exports more competitive than others (Kennedy 2005). Currency manipulation has also led to the protectionism of some of the Chinese market sectors such as banking, telecommunications, and energy (Tang 2010).
Another factor that has led to an increase in the Chinese economy is technology (Kennedy 2005). In the last decade, China has made a great effort in improving its level of development. Technological innovations inside the country have made China to be regarded as a global perspective country (Kennedy 2005). The trend of globalization and the role of trading corporations that are linked with trade, business, and investment have pushed China’s Government to come up with new projects and technological innovations that have taken their global trading environment from one step to another. Zeng (2005) predicted that the influence countries around the world receive would not come from Europe but from China. Capital goods are bought and sold including machinery and productive system, with human power being considered as technology (Tang 2010). The Science and Technology Improvement Law of China has encouraged enterprises to carry out technological innovation with an upgrade of equipment to achieve scientific and managerial competence (Zeng 2005). This law was created for enterprises to develop, increase potential and strengthen the competitive power in the market (Tang 2010).
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