Urbanization and FDI of China
At last we look at changes it made in rural agricultural China. To have a transition from low skilled labor to high skilled labor, workers have certain incentives to make a change. Figure two shows the difference in earnings by certain degrees of education. The distinction is made between college and high school graduates and college and Junior high or lower education graduates. Graduates and high school graduates have steadily increased and reached a maximum in 2002. Furthermore, the income differentials between Junior high and below education increased also, topping the chart in 2008.
The graph shows that there has been an modest increasing trend the past few years. According to Chi (2012), a possible explanation for this phenomenon might be that the pay still had less variance from the pre-reform labor market. Moreover, since 1999 the number of enrolled students in higher education increased spectacular, adding to the high skilled labor force of China. 14 Data Workloads http://stereoscopes. Workloads. Org/Education/Resources/ The economy of rural China has developed and changed radically ever since the economic reforms in 1978.
Paul Bowels (2010) shows that from 1991 to 2006 the percentage of rural inhabitants focusing their labor activities primarily to agricultural Jobs has decreased from 72. 2 percent in 1991 to 35. 0 percent in 2006. This might indicate that farming employees are specializing other skills. 15 3. The impact on foreign investments In the first part of this paper we identified the various forms of labor transition. In the following part we will explain how these transitions influence foreign investments.
Since the beginning of the economic reforms in 1978, the economy of China has grown rapidly. This growth, along with investment opportunities, caused a significant increase in foreign investments. China received about 20 percent of all foreign direct investments to developing countries over the last 10 years and over 100 billion in 20081. So how could transitions in labor influence foreign investments? Foreign direct investments (FED) inflow to China from 1979 to 20102: Education China’s population is the biggest in the world and four times the size of the U. S. Population. If talent is randomly distributed among the world population and if China’s education system is able to identify the brightest students, then China has a larger pool of talent to draw from than any other country in the world. Education is an important factor in research and development. An interesting climate for research and development can attract foreign investments. Rising wages Domestically, China’s continued economic growth means that one-fifth of the world population will continue to experience significant improvements in their living standard.
Due to rising wealth and rising wages, a share of China’s population that exceeds the http:,’/’. MN. ‘. Workloads. Org/en/news/feature/2010/07/16/foreign-direct- investment- china-story 2 International Journal of Arts and Commerce Volvo. 2 No. 3 March 2013 China’s Economic Growth 1978-2025: What We Know Today about China’s Economic Growth Tomorrow – Scarcest A. Hold 16 size of the U. S. Population will enjoy living standards close to the level of developed countries in the near future.
The purchase power of the average Chinese will increase, which will create an attractive investment environment. We do not foresee a shortage of cheap labor caused by the growth in average wages due to the size of the Chinese labor market. Therefore the potential growth of the average wages could increase foreign investments. Arbitration The transition from unskilled to skilled labor caused a migration of farmers to the urban areas of China. Due to the migration from rural areas towards urban areas foreign investments could change.
According to Dry. Kibitz Kumara Shah, Arbitration requires developing countries to uproot most of their traditional rural population, to invest heavily in urban infrastructure and to create the institutions for cities to support and finance those investments, and to develop formal market institutions and a legal framework to replace the social mechanisms of traditional rural societies hat are not workable in the anonymity of urban exchange. When this is realized, the foreign direct investments can increase in a sustainable way. 17 4.
China compared with Indian As mentioned the major factors for foreign investment are economic activity, infrastructure, legal and political system and business environment. In various studies has been proven that investors opt for growing economies. A high gross domestic level (GAP) has a positive effect on foreign inflows of cash. The GAP of China is after USA the number two. Whereas the GAP of India is fourth after the number three Japan. The annual growth rate of China in 2005 was Just below 10 percent and the annual growth of India was about six percent.
To be attractive for foreign investors infrastructure is also important. In the table below the different provinces of China are mentioned with the amount of FED inflows and percentage of total Indies FED. 0 infrastructure. So proper infrastructure is an important condition for FED inflows. Nobody invests his money in a country with high levels of corruption or political instability. So a well-functioning legal and political system is important as well property legislation. India has a strong British-based legal system. This is attractive for foreign investors because western countries are familiar with this system.
The legal and political system of China differs too much with that of the western countries. This makes it unnecessarily more complicated for foreign investors. In this field China could improve compared to India and in this way attract more foreign investors from western countries like India. An attractive business environment is also important. Main incentives for foreign investors are labor costs and human capital (productivity). Unfavorable issues for he business environment are for example rise in tax rate, corruption and the complexity of procedures.
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