Question

Foreign investment is a necessary part of global expansion. Countries like the US, China, India, Ireland, Mexico, Brazil and others welcome foreign investment to help increase employment and GDP. Prepare a paper that discusses how foreign investment benefitted both the US and China workforce. You may include outside internet research to support your discussion. Prepare a short 1-2 page paper answering the five questions below. As a general guideline, your paper must be 600-1000 words in total.

You must also address the following issues:

• The negative effect of foreign investment on China’s consumers;
• How foreign investment helps businesses in both countries;
• Political arguments that oppose foreign investment; and
• The effect the foreign investment had on society in cities like Beijing and Shanghai.

Answer 1

Flow of investment and the rules which govern or fail to govern it can have profound impacts upon various diverse issues such as economic development,labor standards,environmental protection,political and economic stability.When people think about globalization,they often first think of increasing the volume of trade in goods and services.Trade flows are indeed one of the most important and visible values of globalisation.But several studies argue that international investments are much more powerful in propelling the world towards economic integration. Before analysing its impacts one must know what is globalisation.It is used to describe the growing interdependence of the world 's cultures , economies , and population , brought about by cross-border trade in goods and services,people,information,technology and flows of investment.

Foreign Direct Investment(FDI) and the essential role it plays in the financing of national economies especially those in emerging and developing countries like China and US has received a great deal of attention in the international business.It has become an important source of private external finance for the developing countries.In 2019,the United States was the second largest investor in the world with FDI outflows - after Japan.According to UNCTAD's(United Nations Conference on Trade and Development) World Investment Report 2020,FDI inflows in 2019 amounted to USD 246 billion,down from USD 254 billion of 2018.The decline is mainly due to the fall of cross-border merger and acquisition(ie; the consolidation of companies or assets through various types of financial transactions,including mergers,aquisitions,consolidations,tender offers,purchase of asstes and management aquisitions).The country remained the top destination for FDI due to its large customer base, a predictable and transparent justice system ,a productive workforce , a highly developed infrastructure and a business environment that fosters innovation.The main investor countries in US are United Kingdom,Canada,Japan,the Netherlands,Luxemburg,Germany and Switzerland.Most of these investments are in manufacturing,trade and maintenance,information and communication,and financial and insurance activities. Also among the many developing countries seeking economic growth from FDI,China has undoubtedly been one of the most successful.China's highly decentralised FDI approval and policy implementation creates opportunities for healthy competition for FDI among local authorities but can also become the cause of excessive red tape and corruption.China has been quite open for FDI in almost all manufacturing and most service industries.

Various stages of FDI attraction can be distinguished in Shanghai and Beijing.During 1980s FDI concentrated mainly in hotels and other tourism related facilities.Manufacturing directed FDI picked up in the latter half of 1980s.FIE in the tertiary industries have been promoted by Shanghai's pilot role in opening various service industries,most of all in the financial sector,to foreign investors.A salient feature of recent FDI inflows to Shanghai is the comparatively large share of big item projects directed in capital and skill intensive industries.

Different arguments came up against the foreign direct investment.The main arguments are;

1. The heavy cost - In order to induce the foreign investors to undertake investment on a substantial scale,the host country has to bear a quite heavy cost in the form of providing land,water,power,communication and transport facilities.

2.Economic exploitation - FDI is responsible for the exploitation of human and natural resources and markets.The manufactured products are exported to their mother countries by the foreign investors at very low prices.Those products are then re-exported to the third country with or without processing at very remunerative prices.

3.No skill formation - FDIs are required to assist in skill formation by providing training facilities to the workers in both advanced and modern techniques.But the foreign enterprises show little interest in providing training facilities to the indigenous labour.Some lower and middle level routine work are offered to the native work force whereas all senior and executive technical posts are reserved for the personnel from their own countries.

4.Concentration of industries - FDI is likely to cause much concentration of industries near the mineral-rich regions and in large centres of population or port cities where there is already much industrial activity.So there is an increase in regional disparities in industrial growth in developing countries on account of direct foreign investments.

5.Emergencies of monopolies - The enterprises set up by the foreign investors drive out the indigenous competitors in the market who also acquire patent rights about the products and processes.Slowly they emerge as powerful monopolies and thus exploit the host countries.