Owned Enterprise Emerging Economy Countries -Myassignmenthelp.Com

Question: Discuss About The Owned Enterprise Emerging Economy Countries? Answer: Introduction: During the last two decades Chinese economy has faced remarkable growth and rapid transformation in their economy. With the help of the Open Door policy by the Chinese central government during the 1978, the Chinese economy has started to integrate itself with the global economy (Huang et al. 2016). China started to participate in the international trade in greater magnitude and within three decades it becomes the second largest country in economic terms in the world. With the accession of Chinese economy in the world trade organisation (WTO) the growth rate accelerated to a great extent (Hopewell 2015). With higher Ease of Doing Business index, china gained huge amount of Foreign Direct Investment (FDI) from the western economies that has aided the economy to become where it is now (Ahmad, Musheer and Singh 2017). However, during the last one decade, a special phenomenon has arisen in the case of Chinese economy, where the outward Foreign Direct Investment (OFDI) of the country has suppressed the Inward FDI of the Chinese economy. This has highlighted that china is moving towards from a loan taker to loan giver through transforming itself into an investor (Chang et al. 2016). Despite the fact that OFDI of the Chinese economy has been rising subsequently over the year, various Chinese organisations has fall short of their objectives. Thus, it is important to discuss about the OFDI of the Chinese economy and trace out the factors that are affecting it. This essay will provide a framework that will discuss the OFDI activities of the Chinese economy and it will highlight various motivating factors of the same. Besides this, the essay will highlight the Chinese OFDI growth path and try to forecast the future of Chinese economy which is aiming to become a global investor. Chinese OFDI growth path: Traditional perspective of the FDI from the developed nation argues that it is sourced by the developed nations in order to exploit the cheap raw materials and labour in the developing nations. However, when it comes to OFDI, then it differs fundamentally. Owing to the fact that most of the outward FDI of the developing nations are disbursed to the developed countries with a substantial portion to the developing economy it aids to identify strategic assets (Xiongfeng et al 2016). Besides this, OFDI from the developing nations like china it aids to find out managerial and technological skill instead offering them superior technology grown in the home nation. When it comes to Chinese economy, then it has been observed that the country has fostered itself as one of the fastest growing economy with an annual growth rate of 6.7% (Blanchard, Oliver and Francesco 2016). According to the (Naughton and Barry 1996) with ever increasing amount of international trade, the country has become one of the nations that has highest amount of foreign exchange in its reserves. Besides this, statistically there has been substantial growth in the GDP of the country during the last two decades, which has aided the nation to become where it is now. Moving forward, it can be seen that these key factors has aided the country to have higher amount of the OFDI. From figure 1, it can be seen that Chinese economy has increased its OFDI largely over the period 2000 to 2013. As one of the emerging nations, the country has increased its OFDI from 2000 to 2013 by 44% ("MOFCOM Department of Outward Investment And Economic Cooperation Comments On Chinas Outward Investment Cooperation In January-October 2017 -" 2018). According to the same source, Chinese OFDI has increased by 14.1% from the previous year to the 102.9 USD; whereas the inward FDI increased to 119.6 billion USD by 1.7%. Till 2013, most of the Chinese OFDI was aimed towards the Asian economies, however, over the time china has reduced its investment to 50% in this region ("The Story Behind The Shine | Michaelhill.Com" 2018). With higher amount of capital and monetary stock, the economy has become potent enough to penetrate the European economies. Presently, European countries have become the second largest recipient of the Chinese investment and it has given the china an upper hand to diversify its investment further leading towards greater sustainability. Figure 2 suggests that OFDI from Chinese economy is highly concentrated towards the Asian economy. Almost 68% of its OFDI is directed towards the Asian economy and second largest share of the outward FDI of Chinese economy is enjoyed by the Latin America ("MOFCOM Department Of Outward Investment And Economic Cooperation Comments On ChinaS Outward Investment Cooperation In January-October 2017 -" 2018). Natural resource seeking tendency of the Chinese economy has provided the economy a stimuli to have higher level of OFDI, though the per capita resource availability is much lower. Thus to ensure constant flow of natural resource, Chinese economy has raised the outward FDI to the Asian nations that are enriched with the resources (You, Kefei and Offiong 2015). Strong state control over the market and economy has helped the country to have higher level of OFDI (Ash and Kueh 1996). Chinese multinational enterprises have boosted the OFDI over the year to reach 184.3 billion USD. Presently the china invested in 5,410 enterprises in the 160 countries around the world and the overseas personnel dispatched count reached to 974,000 ("China Becomes World's Second-Largest Source of Outward FDI: Report - Xinhua | English.News.Cn" 2018). Considering this, it can be said that growth path of the Chinese OFDI is highly agile and with constant governmental intervention makes it sustainable. Motivation for rise in Chinese OFDI: Various factors have helped the Chinese economy to have higher level of OFDI, which are as follow: Government support and export promotion programs to raise the level of OFDI Constant research and development has helped the economy to come up with superior technologies compared to its rivals Entrepreneurial desire and slow start doctrine in core competencies has helped the economy to penetrate the international market properly with flow of outward investment (Pradhan 2017) Strategic asset and natural asset seeking interest of the Chinese economy is one of the main reasons that acted as the stimuli to the Chinese OFDI Strategies for increasing Chinese OFDI: During 2004, china was the leading country that has highest amount of FDI, however, over the next one decade it has transformed itself as the second largest FDI investor. There are various strategies that helped the country to avail this position, which are as follows (Wang et al. 2018): IJV route: International joint venture is one of the best ways to make strong foot print in the foreign market. Chins utilized this strategy and makes strong partnership with the foreign nations ranging from Asian countries to western countries (Wang et al. 2018). Wholly owned subsidiaries: Using this strategy, Chinese enterprises during initial stage gain international recognition with their products and services and then direct their investments to the foreign market (Piperopoulos et al. 2018). Cross-border acquisition and mergers: Utilizing this simple framework of growing the footprint in the international market, Chinese economy becomes the second largest investor. With the huge amount of capital, china at initial stage purchases the foreign brands and using their goodwill and rand name directs their investment in the foreign market (Li et al. 2018). With these various strategies, Chinese economy enhanced their OFDI and now it has become the second largest investor in the world. Challenges for Chinese OFDI: With 206.69 billion USD OFDI, china has become the second largest investor in the world, however, there are certain amount of risks too ("Chinas Overseas Investments, Explained in 10 Graphics | World Resources Institute" 2018). Due to the difference in the managerial and cultural practice in the different markets, it has become hard for the Chinese investment to find their ideal target. Moreover, lack of personnel who have international management skills has made the Chinese investment to influence the western economies (Appelbaum and Henderson 1992). According to the figure 3, it can be seen that most of the investment of china was concentrated in the Asian economy during the 2004. Lack of diversity in the Chinese OFDI has made it critical for the economy to provide stimuli. Thus, over the next one decade it has taken various transformational steps in order to diversify the investment and by the year 2014, it has effectively reduced investment in the Asian country and a rise in inve stment in the western economy ("China Becomes World's Second-Largest Source Of Outward FDI: Report - Xinhua | English.News.Cn" 2018). Chinese OFDI is maturing itself over the time and it is now the second largest investor. However, it needs to understand the post entry process in order to integrate itself with the various economies (Buckley et al. 2018). Future forecast of Chinese OFDI: China has ever increasing amount of the OFDI and according to the trend, the countrys outward FDI is rising at 17.9% annual rate. Considering the different industry, it has been observed that the OFDI of the country is rising in the case of commercial service industry by 32.4%, manufacturing industry by 17.0%, retail and wholesale industry by 12.3% and information transmission by 9.9% annually ("MOFCOM Department Of Outward Investment And Economic Cooperation Comments On Chinas Outward Investment Cooperation In January-October 2017 -" 2018). Besides this, the country has signed deals of investment summing approximately 155.47 billion USD and the additional 12.37 billion USD as the contractual project investment in 4,951 enterprises ("Chinas Overseas Investments, Explained In 10 Graphics | World Resources Institute" 2018). According to the same source, China-Pakistan economic corridor project signed by both the developing nations is an ambitious project of 13.3 billion USD that has bo osted the total OFDI of the Chinese economy to 206.69 billion USD for the year 2018. According to the figure 5, it can be seen that the future forecast shows that by the end of the year the economy has disbursed 5 trillion USD as OFDI since 2004 to 2012. And the projection highlights that it will rise to 18 trillion by the year 2020 if the trend remains same, making it the largest investor in the world ("China To Become One Of Worlds Biggest Overseas Investors By 2020" 2018). Presently, it is acknowledged as the second largest investor in the world and with its ambitious projects it can certainly become the largest investor in the world (Li et al. 2016). However, there are various recommendations that the country to need to follow in order to keep the flow continued, which is discussed below. Recommendations for the Chinese economy to become a world investor: Chinese OFDI is growing at a large scale over the year and recently with ambitious project with various economies, multinational enterprises, the economy is expected to high demand of their investment too. However, there are various factors that need to be checked to maintain the trend. Recommendations for keeping the Chinese OFDI are as follows: China needs to diversify its OFDI in order to make it elastic The country need to invest more on the high yielding assets in order to enhance the scope of higher return Though there is rise in FDI outflow, the Chinese economy need to invest more in the neighbouring nation, which will not only reduce the scope of retaliation of Chinese activities in the area, besides this it will provide diversity in the Chinese OFDI portfolio Chinese economy mainly invest in the commercial projects, however it need to invest more in the infrastructural development projects Conclusion: This essay has analyzed the OFDI performance of the Chinese economy and it tried to find out the factors that are affecting the outward flow of the FDI for the Chinese economy. Besides this, it has tried to forecast the future of Chinese OFDI and found that there is high potential in front of the Chinese economy to become a world investor. Above analysis has found that there is sharp rise in the OFDI of the Chinese economy and if the trend continues, then the Chinese economy will be the largest investor in the world by 2020. The analysis has found that most of the OFDI of the Chinese economy is disbursed to the Asian countries that possess risk in the case of demand side shock. Besides this, Chinese economy needs to diversify its OFDI and invest more in the high yielding assets. The report has also found that conventional motivations like government support, global competition, idiosyncratic motivations helps the country to have higher level of OFDI. In addition to this, Chinese mult inational enterprises strategic asset seeking encouragement has helped the nation to become one of the largest investor in the world. To conclude, it can be said that, given proposition in the question is true and if the trend continues then, the country can certainly reflect itself in the role of global investor. Reference: "China Becomes World's Second-Largest Source Of Outward FDI: Report - Xinhua | English.News.Cn". 2018.Xinhuanet.Com. https://www.xinhuanet.com/english/2017-06/08/c_136350164.htm. "China To Become One Of WorldS Biggest Overseas Investors By 2020". 2018.Ft.Com. https://www.ft.com/content/5136953a-1b3d-11e5-8201-cbdb03d71480. "ChinaS Overseas Investments, Explained In 10 Graphics | World Resources Institute". 2018.Wri.Org. https://www.wri.org/blog/2015/01/china%E2%80%99s-overseas-investments-explained-10-graphics. "MOFCOM Department Of Outward Investment And Economic Cooperation Comments On ChinaS Outward Investment Cooperation In January-October 2017 -". 2018.English.Mofcom.Gov.Cn. https://english.mofcom.gov.cn/article/newsrelease/policyreleasing/201711/20171102674847.shtml. 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