The growth of globalization has led to openness in international markets, thus leading to rapid economic growth. Foreign investments have gained a great boost from globalization. The increased 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. 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. The rapid economic growth can be attributed to the forces of globalization, which has boosted foreign investments. 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 sparking economic growth. 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. This has positive effects on the economy in terms of increased foreign investment and demand for products (Rhys 2010). Through globalization, China has been able to review its trade policies. The inefficient foreign investment restrictions of the 1980s have been removed thus encouraging export operations (Rhys 2010).
The Chinese trade policies have experienced deregulations and the introduction of new policies that have led to an upsurge in FDI’s. 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. Many of these changes took place in 2001 after China joined the World Trade Organization. The entrance of China into the WTO reduced the risk of investing in China because the operating environment became more transparent and predictable. These developments have a strong influence on economic growth since foreign trade is facilitated (Thomas 2008).
Globalization has come with deregulation of foreign investments, thus encouraging more foreign operations. The incentives provided for investments in different industries and regions have also had a profound impact on economic growth. For instance, technological and agricultural sectors have been prioritized in government incentives, which in turn boost economic growth. This is associated with globalization, whereby Chinese firms are aiming at producing high-quality and affordable products and services for competing in global markets (Fulong 2002).
The integration of China into the world economy has led to a robust increase in foreign trade. Globalization has led to liberalization and decentralization of foreign trade thus encouraging helpful competition (Paul 2001). The reforms in foreign exchange regimes are also of significance in economic growth, whereby it has led to increased Chinese participation in international trade. Other key aspects affected by globalization include the removal or lowering of tariff barriers. These developments have a significant impact on foreign investment and trade (Paul 2001). The rapid economic growth of China can be attributed to the integration of the country’s economy into the world economy. Globalization should hereby be embraced as an essential factor in economic growth.
Fulong, W 2002, ‘China’s Changing Urban Governance in the Transition Towards a More Market-Oriented Economy’, Urban Studies (Routledge), Vol. 39 no. 7, pp. 1071-1093.
Paul, A 2001, ‘The Effects of Globalization on China, a Developing, Newly Industrialized Economy’, Ecodate, Vol. 15 no. 1, pp. 5-8.
Rhys, J 2010, ‘China’s Global Expansion and Latin America’, Journal of Latin American Studies, Vol. 42 no. 4, pp. 809-837.
Thomas, P 2008, ‘Growth and Inequality’, Dissent, Vol. 55 no. 1, pp. 66-75.