Investing In China

Introduction

Since the initiation of economic reforms in 1979, China has become one of the worldÐŽ¦s fastest-growing economies. From 1979 to 2005 ChinaÐŽ¦s real GDP grew at an average annual rate of 9.6% (Morrison , 2006). Foreign Direct Investment (FDI) was one of the main pillars of reform. With its entry into the World Trade Organization, the opportunities for companies from overseas to invest in China are expect to increase significantly in the coming years. However, this is one of the many images that China currently portrays to attract foreign investment and increase its global influence. This paper intends to shed light on the CCP governmentÐŽ¦s increasingly short-termist reforms which seem to lack in depth and efficiency. Although the country has made significant progress in liberalisation, the regulatory system and in the battle for reduced corruption, the country has not complied to its WTO commitments. The state has attempted to urbanise at the expense of inefficient reforms for the majority of the population. Furthermore, China is in a stage of transition towards high-tech and tertiary sector business. However, critics say that China lacks the technological sophistication and skilled labour necessary to compete on the world stage.

A shift towards democracy?

Economic reform in China

Economic reform in China since 1979 has drawn the attention of economists, political scientists, policy analysts, and international investors seeking to understand the sources of this success. ЎҐChina has generally implemented reforms in a gradualist or piecemeal fashionÐŽ¦ (www.cia.gov, 2006). Essentially, China has already revised their laws and regulations in order to allow foreign direct investment and attract multinational organizations to invest.

Upon reading PeiÐŽ¦s given comments, the underlying issue becomes clear: China has greatly misled its people and investors into believing that the country aspires to become a democracy and naturally, endeavours to bring about speedy reform of the economic system including, greater liberalization and improvements in regulation as well as incentives for overseas investors. According to Pei, the supposed period of reform since 1979 has in fact been the product of elitesÐŽ¦ pursuit of personal agendas, wishing to re-impose the communist way and acquire greater personal power and authority. This inevitably, has led to weak reforms lacking in depth and long-term results that should ultimately be directed toward improving the lives of the Chinese mass ÐŽV as was seemingly intended thirty years ago. Thus Pei has supposedly given an insight into the realities of the operations of the CCP, and in so doing, warns foreign investors not to be fooled by this, soon to expire, ЎҐrecord-beating growthÐŽ¦ and that China will not adapt to the forces of globalisation. Foreign investors should expect to receive less than a warm welcome into the Chinese mass market.

More specifically, Pei accuses the Chinese government of:

„X centralisation and inefficiency

„X inconsistency in the implementation of reform

„X insufficient liberalization

„X corruption, a weak regulatory framework and judicial system

„X discrimination, intimidation and abuse of foreign investors by a handful of elites

„X most importantly: using evidence of economic growth as justification for these

actions and so maintenance of the status quo vis a vis authoritarian rule.

However, one ought to practice caution with use of PeiÐŽ¦s work as although she gives strong evidence in many cases to support inferences, it becomes obvious that strong over scepticism and undertones of distrust of Chinese socialism are usual throughout her work. For example, in one of her more recent articles, she quotes that China ranks 127th for economic freedom (Pei, 2006), whereas the Heritage 2006 Index of Economic Freedom ranks China 111th (www.heritage.org, 2006). Minxin PeiÐŽ¦s work seems to speak for the majority of US bodies which provide many stark contrasts to Chinese government publications, which continuously prove optimistic, praise communist ethos and shed little light on faults in the system. The USÐŽ¦s position however, often seems bitter at the strong prospect that China shall outperform the US economy in the near-future, also becoming an influential political force on the global scene (Shankar, 2005). The US often waves any progress, (though little) China makes towards WTO integration.

The Fourteenth National Congress of the Chinese Communist Party (CCP) has clearly pointed out that the nature of the economic reform is to change the mechanism of resource allocation, so China can move from a planned to a market economy in which the market plays a critical role in the allocation of resources (Wu, 2000). Reform of SOEs in particular has been far from satisfactory, and the old system continues to impede the establishment and improvement of the new market economic system (Wu, 2000).

Although economic reform and decentralization have clearly generated economic benefits for China, it has also been associated with significant problems. It is important to remember that even though the Chinese government has embraced capitalism to an extent, it is still a totalitarian communist government (Halbert , 2004). Perry (2006) proposes that past revolutionary experience still influences current Chinese politics, despite enhanced education of Chinese officials. Furthermore, she articulates the recent increase in public protests within China, which she claims shall spiral, resulting in a turning point in state-society relations ÐŽV uncontrollable public behaviour and ultimately the fall of government. This is an indicator of domestic disillusionment with decades of weak public reform. Shankar (2005, pg. 38) claims that ЎҐChinese leadership does not include transition to democracy.ÐŽ¦

ChinaÐŽ¦s entry into the World Trade Organisation

Many use ChinaÐŽ¦s entry into the WTO as an indicator of its future, expecting increased transparency, open regulation and a protection of property rights. Although evidence has been provided of instances when ChinaÐŽ¦s economy has opened to an extent, a report to the US congress, December 2003, highlighted that ChinaÐŽ¦s compliance to the WTO was ЎҐuneven