Benefits Of FDI In China

According to China history, foreign direct investments were appears and started in China when their governments diminished the isolation policy which has been adopted by China after 30 years. Following the defeat in the Chia-Wu war with Japan, China start to open their coastal city to foreign direct investor after signed the ‘treaty of Shimonoseki’ (Dunning & Narula, 1996, p.418). Their domestic markets were dramatically improved when China start to decentralize the corporate decision making and development of market mechanism. When China changes their economic system to open-door policy in 1978, foreign direct investment (FDI) in China was grown significantly in the Chinese economic system. China become a largest FDI recipient in developing world and globally and surpassed US with the FDI inflows of $36 billion, at the end of 2005, cumulative FDI was $622 billion (Kevin, 2006, p.2). In order to gain more knowledge and improvement of ideologies, China chooses FDI as the best way to growth of their economy rapidly. The most important benefits of FDI were their economy and industry improved because through FDI, China gain the foreign capital, use an advanced technology and skilful labour. This is because skilful labours are needed and important in the industry to produce worth and high quality output. As a result, FDI inflows includes 7% of gross capital formation, 21% foreign-invested enterprises (FIEs), 28% of industrial output produced by FIEs; and 57% China exports were also come from FIEs ( Kevin, 2006, p.2).

Roles of FDI

FDI main role is to promote the economic development by increase the capital stock and augmenting employment. These statements were argued by Balasubramanyam et. Al (1996, 1999) and de Mello (1997, 1999) whi...

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... proven that FDI successful in china to improve the economic growth if they compare to the previous time when they still use an isolation policy.

But, based on the Marxist critique, FDI also give bad effect on China because multinational is exploitation mechanism because it control the country to develop by western industrialize country (Kevin, 2006, p.5). These arguments supported because FDI not only close and small the gap between domestic investment and savings, but also make it become lower. In a long run, FDI can reduce the profit of foreign exchange of capital and accounts. In a short run, FDI not create problem so much but it will become worst to the domestic investment and saving in a long run period. The utilization of updated technology and skilful labour will block the development of local firms when the foreign firms exist in the Chinese economy market