China became a member of the World Trade Organization (WTO) on 11 December 2001.' The admission of China to the WTO was preceded by a lengthy process of negotiations and required significant changes to the Chinese economy. It also meant a deeper integration of China into the world economy. Until the 1970s, China’s economy was managed by the communist government and was kept closed from other economies.
Together with political reforms, China in the early 1980s began to open its economy and signed a number of regional trade agreements. China gained observer status with GATT and from 1986, began working towards joining that organization. China attempted to become a founding member of the WTO, seeking recognition as a world economic power.
This attempt failed because the United States as well as the European states and Japan requested changes in the Chinese economy before accepting it as a member. These conditions included tariff reductions, open markets and industrial policies. These changes were difficult steps for China and conflicted with its prior economic strategy. Accession meant that China would engage in global competition according to rules that it did not make. The admission of China to the WTO was „an enormous multilateral achievement” which marked a clear commitment towards multilateralism from the Chinese perspective. United States role
The U.S. acted as a dominant power in the international economy and strongly supported an open system. They had a great interest in China because it was one of the fastest growing markets for US goods and services. U.S. exports to China almost doubled within five years from 51.5 billion dollars in 1996 to 102 billion dollars in 2001. The US imposed additional conditions on China and so there were, from a Chinese perspective, both positive and negative aspects linked with admission. Four Asian Tigers
The Asian Tigers or Asian Dragons is a term used in reference to the highly free and developed economies of Hong Kong, Singapore, South Korea, and Taiwan. These nations and areas were notable for maintaining exceptionally high growth rates (in excess of 7 percent a year) and rapidindustrialization between the early 1960s and 1990s. By the 21st century, all four had developed into advanced and high-income economies, specializing in areas of competitive advantage.
For example, Hong Kong and Singapore have become world-leading international financial centers, whereas South Korea and Taiwan are world leaders in manufacturing information technology. Their economic success stories have served as role models for many developing countries, especially the Tiger Cub Economies. Despite a World Bank report crediting neoliberal policies with the responsibility for the boom, including maintenance of export-led regimes, low taxes and minimal welfare states were also praised, but institutional analysis also states some state intervention was involved.
The World Bank report acknowledged benefits from policies of the repression of the financial sector, such as state-imposed below-market interest rates for loans to specific exporting industries. However, it also pointed out free trade and less government spending were the driving force. As a result these economies enjoyed extremely high growth rates sustained over decades. Other important aspects include major government investments in education, non-democratic and relatively authoritarian political systems during the early years of development, high levels of U.S. bond holdings, and high public and private savings rates.
A period of liberalization did occur, and the first major setback experienced by the Tiger economies was the 1997 Asian financial crisis. While Singapore and Taiwan were relatively unscathed, Hong Kong came under intense speculative attacks against its stock market and currency necessitating unprecedented market interventions by the state Hong Kong Monetary Authority, and South Korea underwent a major stock market crash brought on by high levels of non-performing corporate loans. As a result and in the years after the crisis, all four economies rebounded strongly. South Korea, the worst-hit of the Tigers, has managed to triple its per capita GDP in dollar terms since 1997.
FDI Definition: Foreign direct investment is of growing importance to global economic growth. This is especially important for developing and emerging market countries. FDI from investors in developed areas like the European Union and the U.S. provide funding and expertise to help smaller companies in these emerging markets to expand and increase international sales. In 2012, these emerging markets became the greatest beneficiary of FDI. Inflows exceeded those to developed countries by $130 billion.
The developed world also receives its fair share of cross-border investment, but of a different nature. Most of this was mergers and acquisitions between mature companies. These already-global corporations are engaged in restructuring or refocusing on core businesses. However, it gets recorded as FDI. This type of investment is more about maintenance, and less about making great strides in economic growth. (Source: UNCTAD, Annual FDI Report) What Exactly Is Foreign Direct Investment?
The International Monetary Fund defines FDI as when one individual or business owns 10% or more of a foreign company's capital. Every financial transaction afterwards is considered by the IMF as an additional direct investment. If an investor owns less than 10%, it is considered as nothing more than an addition to his/her stock portfolio. With only a 10% ownership, the investor may or may not have the controlling interest in the foreign business. However, even with just 10%, the investor usually has significant influence on the company's management, operations and policies.
For this reason, most governmental agencies want to keep tabs on who is investing in their country's businesses. (Source: Definitions of Foreign Direct Investment: A Methodological Note, Maitena Duce1, Banco de Espana, July 31, 2003)
Advantages of FDI Inflows Investment of a foreign company in the American market can provide new technologies, capital, products, organizational technologies, management skills and potential cooperation and business opportunities for local businesses. For example, Volkswagen, a European automotive manufacturing company, is building a plant in Tennessee. Its investment needs local small businesses as suppliers -- from the construction sector during building, from suppliers of equipment and accessories in the automotive industry and from other businesses, such as cleaning services and plumbers. Disadvantages of FDI Inflows
Investment of a foreign company with its new technologies and products has several disadvantages for local businesses. New products arriving at lower prices create competition and force local businesses to lower their prices and reorganize their operations in terms of costs. Local businesses may lose their customers or even their business relations with other companies as they start cooperating with the new foreign one. Related Reading: Business License Pros & Cons
Advantages of FDI Outflows A foreign investment by an American company has positive effects at home. As it concentrates part of its operations abroad, the American company may not expand its activities in the local market at the same time, so it leaves more business opportunities and more potential customers for the small businesses that remain. A domestic business that invests overseas may bring new technologies to its home market or may need new business operations with small businesses to complement its activities abroad. Disadvantages of FDI Outflows
Imagine an American multinational company that builds a new factory in Brazil because of lower work force and resource costs and brings new products and techniques back home at low prices. This action sparks stronger competition in the American market for local businesses: Small businesses compete against more effectively operating companies and their products and services that have backups from abroad and may not be sensitive to changes in resource prices and wages in the local market.