CHINA

Introduction to China :
 China has the largest population in the world.
 It is participating in the modern world.
 Chinese firms are also evolving to compete not just in their own market but also abroad,
as a new group of multinational flexes.
 Its economy attracts the growing amounts of FDI as foreign firms take advantage of
opportunities to produce products cheaper and sell into expanding domestic market.

Growth of China :
 China has the second largest economy in PPP GDP, and third largest trader, the largest
producer of rice, wheat, cotton and tobacco.
 In 2001 china joined WTO and began to attracts record levels of FDI. It carries the
commitment to phase out non tariff barriers, providing trading rights o foreign
companies.
 China is now ranked as a fourth largest economy in nominal GDP.
 China centered on opening up the country in term of inward and outward trade and FDI.
 Two main problems china faced are inflation and local government debt which swelled as
a result of stimulus policies and potential low quality.
 China has a country specific advantages that’s why firms access to its resources.
 Most of firms want to made FDI in china to access the market, technologies and brands.

Role of China government :

 Government reforms and the maintenance of the critical balance between liberalization
and continued government control, guiding the development of capitalist enterprises and
market incentives.
 Chinese government has emphasized market led growth by raising personal incomes and
consumption while helping newly privatized industries to increase productivity through
technologies.
 China government have worked on a three step development strategies. This has involved
regional development initiatives, new focused on controlling growth and subsidized
growth island.
  Another major policy objective in china is to boost high technology industry sectors. The
government is also facilitating both local technology based start up firms and
encouraging high tech FDI by upgrading the R and D infrastructure.
 The government retains substantial control over some areas of economy and its
influential in others like aerospace, telecoms ,constructions and creative media.

MNE investment into China :

 China holds the double attraction for MNE of a cost effective source of production
inputs, particularly cheap labor, and a growing consumer market.
 China has a reputation as a cheap manufacturing hub so cost advantage are still primary
motivator for many companies.
 Other positive sources are lower capital costs and low cost product design and R & D.
 MNES have made a large numbers of investments in china and the country now hosts the
largest number of MNE’S affiliates of any economy.
 Most investments have been in the form of equity joint ventures of WFOEs. Like
walmart expanded its presence in china through the acquisition of trust mart.
 Distinguishing feature of china is that inward FDI is the wide range of firms and
industries involved. Like motorola, general motors and volks wagon, Heinz and Babcock
and Wilcox.
 Kodak also done well in china by working with the higher echelons of the central
government in Beijing.
 A regional investment pattern is also strong. E.g in term of sales Taiwanese firm
Hongfujin precision industry a subsidiary of Hon Hai precision industry has surpassed
motorola in size becoming the largest foreign affiliate in china.

FDI in China :
 There are almost 300 foreign R & D centre’s in china.
 Electronics and ICT firms were among the earliest entrants.
 Pharmaceutical firms have followed suit, including $100 million centers for both
Novartis and GSK in the late 2000.
 Local firms as MNE’S networks supplements and support china national system of
innovation. China is most favoured destination for firms to made investment.
 Well educated graduates and a very good science and technology are important national
assets for china.
 China overall spends more than double the UK on research and development and
growing 9 percent annually.
Getting into China :
 Chinese economy is centrally planned to some degree and the rights of all firms and
individuals are strongly influenced by central local and regional government agencies.
 Firms can invest via a range of FDI mechanism including sino foreign joint venture, joint
exploitation, and exclusively foreign owned enterprises.
 There are many foreign entrants issues in china like: market access rights, Chinese tax
laws, intellectual property rights, keeping face and being respectful are important,
learning the language is important, find cheap labors and managers skills are difficult.
 Joint venture have bot6h problems and benefits. Joint ventures gives foreign firms an
element of control combined with the benefits of gaining immediate access to
experienced managers and their local relationship networks.
 Control the challenges china should rises in wages, motivating personal ranks, control
management weaknesses.

Outward investment and new multinational from China :

 Private Chinese companies are stepping up their outward investment but large SOEs
account for bulk of FDI outflows from china. Much outward FDI comes from large
Chinese companies.
 Presence of Chinese companies simply measure the size and profitability not the degree
of internationalization.
 Chinese firms are highly dependent on their domestic and regional markets.
 They still relies on country specific advantages and have yet to develop the requisite firm
specific advantages.
 In abroad Chinese firms follow same logic as other MNE’S . They are driven by two
main reasons, input oriented investment and output oriented investment.
 Chinese firms do aim to move higher up the value chain, design and research and
development activities will become important as well as access to advanced market
economies abroad.