| It's been happening rapidly and it's been happening | | | | its loans without restrictions which perturbs many |
| (with the odd hiccup) consistently. For 10 years the | | | | international aid organizations and the World Bank |
| PRC has been growing at a break neck pace at | | | | which try to place restrictions on their loans. These |
| something like 10 per cent per annum. Fishing villages | | | | restrictions usually involve issues with corruption or |
| like Shenzhen (the closest city in the PRC bordering | | | | the environment. |
| Hong Kong) have become cities and cities like | | | | Investor enthusiasm for China and India (noted in the |
| Shanghai have become mega cities with the immense | | | | latest (2005) FDI Confidence Index) is at an all-time |
| Pudong financial district rising from paddy fields in a | | | | high, with roughly 45 per cent of global investors |
| decade. Urban legend? It has been said that at one | | | | more upbeat about China and India compared to last |
| point half the world's cranes were to be found in | | | | year. China achieved its highest ever score in the |
| Shanghai. | | | | latest index and has held top spot since 2002. |
| This article considers how China is managing this | | | | The FDI gap is likely to widen as China continues to |
| growth through its own programme of Foreign Direct | | | | implement its WTO accession commitments that |
| Investment (FDI) and the implications of its success | | | | involve extensive liberalisation of the service sector |
| or failure in steering the behemoth economy it is | | | | until the year 2007. |
| creating. We will also look at the frameworks being | | | | At some point as or after this article goes to press, |
| used for the flow of FDI into China. | | | | China will surpass US$1 trillion in reserves. With the |
| In an effort to cool growth and prevent overheating | | | | immense wealth comes increasing responsibility as |
| in the economy, The People's Bank of China had | | | | China takes on a part in not only steering its own |
| required banks in the PRC to increase funds on | | | | economy but that of the world. Within the next 20 |
| reserve to nine per cent by 15 November 2006. This | | | | years, China could rival the US as one the world's |
| followed two similar orders to increase deposits in | | | | economic navigators. |
| June and July 2006. Estimates suggest that each 0.5 | | | | The US$1 trillion reserves represent a fivefold |
| per cent rise in the funds banks keep on deposit | | | | increase since 2001 and present great challenges to |
| freezes 150 billion Renminbi. | | | | China whilst simultaneously reflecting the successes |
| China's scrabble for natural resources to fuel its | | | | of its policies. On the downside China now has an |
| growth is important. Over the past decade China has | | | | imbalanced economy, driven too much by exports - |
| worked assiduously at building relationships with | | | | which keep adding to those reserves - and not |
| resource rich countries, particularly those that are | | | | enough by domestic consumers. |
| nonaligned or have specific anti-US or socialist policies | | | | China is trying to manage the transition to a more |
| like Venezuela, in keeping with China's political hue. | | | | consumer-driven economy through policies aimed at |
| Evidence of this can be found at the recent summit | | | | stimulating domestic spending which include two, |
| of African nations - called the Forum on China-Africa | | | | week-long national holidays. |
| Cooperation - which included 48 African nations | | | | Research presented by academics in a paper at the |
| devoted to developing increasingly stronger economic | | | | Sixth Asian Economic Panel Meeting has shown that |
| relationships. As many as 2,500 deals were on the | | | | FDI to China is positively related to levels of FDI that |
| table at the summit for oil and other resources. | | | | the other main contenders for investment in |
| Trade with African nations has grown to US$40 billion | | | | neighbouring Asian and South East Asian countries |
| and Chinese investment has poured into copper | | | | receive. However, the increases are not shown to be |
| mines and oil fields, helping to boost African | | | | proportionate. |
| economies. As the world's second largest consumer | | | | While both the level of China's foreign direct |
| of oil behind the United States, China last year | | | | investment and the levels of foreign direct |
| imported 38.4 million tons of oil from Africa. | | | | investments of Asian economies are increasing |
| The World Bank has pledged US$2.3bn to | | | | together, an increase in China's investment is |
| sub-Saharan African nations this year yet this pales in | | | | associated with a decline in the shares of foreign |
| comparison next to the US$8.1bn (according to World | | | | direct investment of the Asian economies. The |
| Bank figures) Beijing has committed in 2006 to | | | | self-perpetuating affect of China's continued share of |
| Nigeria, Angola and Mozambique alone. This places | | | | FDI growth in Asia is not the most important |
| China in the position of becoming the number one | | | | determinant governing FDI into Asian countries. Policy |
| lender to African nations. | | | | variables under the control of the nations concerned, |
| Some in the West have criticised China for pouring | | | | such as lower corporate taxes and higher degrees of |
| money into African treasuries while ignoring human | | | | openness play a larger role in attracting investment. |
| rights and environmental concerns on the continent. | | | | Lower levels of corruption also play a role in leading |
| China, however, has rejected such criticism, saying it | | | | to higher levels of FDI. |
| abides by a policy of non-intervention and it makes | | | | |