Chinese government declared that the most distinctive feature of the new era was reform and opening up which is considered as a significant method to change the economic situation in 1978. Such policies have contributed to increasing China's level of globalization. After the opening-up policy implemented, the Chinese economics has received a huge impact. Ayamba et al. (2019) consider that China's economy is growing steadily because of the further opening-up policy. The data displays that there are approximately 136.33 billion U.S. dollars foreign direct investment in China in 2017 (Ayamba et al. 2019 cited in MOC, 2018). World investment report shows that it is a 7.9% increase from last year which is just behind from the FDI in USA. Ljungwall and Li (2007) consider that the interaction between foreign direct investment and measures of market financing promotes economic growth. Zhang (2006) also claims that foreign direct investment seems to promote income growth, furthermore, the positive growth effect seems to increase over time and is stronger on the coast area of China than central China. This paper will discuss how globalization affects the Chinese economy from four different part including employment opportunities, introduce foreign advanced technology and management experience and balancing China's balance of payments and, on other hand, negative impact on domestic enterprises. The FDI’s effect on these four parts represent the influence of globalization as FDI is the most direct reflection of globalization on a country. By discussing the effect of FDI on Chinese economy, this paper will show that globalization positively associate with Chinese economy.

 

The investment of foreign capital has greatly increased the number of jobs in China. Fu and Balasubramanyam argue (2005) that FDI plays a huge role in expanding employment opportunities in China. According to the report on foreign investment in China in 2010, there were more than 30 million employees in foreign direct investment enterprises, accounting for about 16 percent of the country's labor force by the end of 2008. Foreign investment enterprises in China is the most important way of getting foreign direct investment. Furthermore, the establishment of new enterprises is bound to provide more job opportunities. This paper explains this result by two reason: one is the lower tax rates and other is the huge spending power in the Chinese market. Li (2007) shows that the tax for foreign companies is much lower than domestic companies which is extraordinary lucrative for foreign companies. China is a country with a huge population in the world, which results in a huge size of the Chinese market. This means that there is considerable value in investing in companies in China. The increase of employment opportunities will increase people's trust in foreign enterprises, which is very conducive to FDI and creates a cycle (Moosa, 2002).

 

The investment of foreign capital gives China's economic development advantages in science and technology and talents. Gao and Zhang (2013) show that foreign enterprises have promoted the progress of science and technology and talent management in China to some extent. The establishment of foreign enterprises in China will inevitably bring the technology of their products and the management system and ideas of the company. Domestic enterprises have the opportunity to learn such technology and management styles when trade with such enterprises which is supported by Wei and Liu (2001). As a result, domestic enterprises imitate the management experience of foreign enterprises and learn their technology in pursuit of higher efficiency and benefits. This is conducive to domestic enterprises to improve their competitiveness.

 

Foreign direct investment could alleviate the debt problems of the host country. Brouthers et al (1996) argue that foreign direct investment is beneficial to the balance of international payment in host countries. The most direct result of FDI is the net inflow of foreign capital. It prevents fiscal deficits which is good for the fiscal management in host countries. Balance of payments imbalance will lead to the loss of foreign exchange reserves and debt crisis of the host country. Consistent imbalance of payments are a huge blow to a country's credibility and economic strength. Hence a large amount of FDI is conducive to host countries to increase foreign exchange reserves and prevent the occurrence of income and expenditure imbalance.

 

Foreign direct investment, on the other hand, cause some economic problems. For instance, it increased competition between domestic companies and foreign companies. In China, many small and medium-sized enterprises lack management experience and technology, which is a disadvantage when competing with foreign companies. This will hinder the development of small and medium-sized enterprises to some extent. Therefore, governmental support for preferential to small and medium-sized enterprises is advised to make up for their shortages. Hong (2004) suggests that foreign direct investment, in particular, may ostracize domestic capital, making domestic capital and huge foreign exchange reserves face the problem of rational use. However, Tang et al (2008) argues that the foreign direct investment does not crowd out domestic investment but complements it by using a multivariate VAR system. Therefore, as globalization deepens, domestic companies are likely to suffer.

 

The introduction of foreign capital may reduce regional economic inequality. Fleisher and Zhao (2010) conclude that investment in human capital in less developed areas makes sense as it helps to reduce regional inequality. But the industrial distribution of foreign direct investment is extremely unbalanced, which is not conducive to the upgrading of China's industrial structure. Foreign investment is concentrated in the secondary sector, where investment is low, profitable and quick to produce results. Agriculture ranks third as the large investments requirement and long recycling cycles of it. This will lead to uneven development of different industries in China and some industries with high profits and high returns are highly monopolized by foreign investors. This paper suggests that the government should create the advantages of agricultural and tertiary industry development for foreign companies and should encourage healthy competition between domestic and foreign enterprises

 

In conclusion, some people argue that whether the globalization is good for country’s economy. On the one hand, FDIpromotes Chinese economic development. Furthermore, they see benefits to the prosperity of their residential area causing the increase of the market size. On the other hand, many people complain that starting a business is difficult because it is difficult for individuals and groups to compete with international foreign companies. Therefore, although there are few shortages of the globalization, it is worth to support the spread of globalization and take international challenges. Government and firms should take corresponding measures to deal with the adverse effects of globalization.

 

 

Reference:

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