PONTINO, Nilleth Mae Ann V.

July 18, 2013

FMMACRO K31
REACTION PAPER ON FOREIGN DIRECT INVESTMENT IN CHINA
Dr. Daniel C. ONeill presented his study regarding the relationship between China,
Cambodia, and Kazakhstan in terms of macroeconomic connections through Foreign Direct
Investment (FDI). He presented important points relative to his main point in the discussion of
the FDI in the Peoples Republic of China, such as the interconnectivity and effects, both
positive and negative, of Foreign Direct Investments from the source countries as well as the
receiving countries. There was also a review considering the recent global FDI flows since 2010,
more specifically the movement of FDI from developed countries to developing countries,
instead of the conventional developed-to-developed country scheme.
In addition to the facts given, Dr. ONeill also gave his argument concerning the outward
flow of FDI from China in developing states rather than developed ones. He stated that
developed states have laws that protect their rights and that Chinese firms often get into risky
trades, making these developed countries wary; on the other hand, developing countries have a
weak rule of law, high political risk and corruption, making them susceptible to shady deals. In
conclusion, he found that political institutions and policies matter in Foreign Direct Investment
since the government has the ability to influence economic decisions and strategies either in the
domestic or external environment. With this, he speaks of Chinas bilateral policies such as
unconditional loans and strong trade with Cambodia and Kazakhstan in order to accommodate
the growing economy as to stabilize the financial system through the latter countries utilization
of natural resources.
Given all these statements, I would affirm to some of the arguments Dr. ONeill has
given. China, being a newcomer in globalization, still has a lot to prove when it comes to
international trade in terms of security and policy. Therefore, their urgent need for expansion
from their economic growth is settled even through high-risk deals. The problems in market
saturation, natural resources, pressure in foreign exchange rates, and declining profit margins
enabled China to engage in trades such as in Cambodia and Kazakhstan. This poses the issue of
profitability over morality; given that the government would go through such lengths just to let a
few people stay in power, in order to continually take the resources. It is a matter of weighing the
pros and cons of Foreign Direct Investment and striking a balance to a certain extent wherein
morals will not be compromised in order for all to benefit. It is certain that FDI does help the
economy with job creation, revenue production, increase in capital, and the promotion of
domestic competition, but it also makes a big gap in the inequality between countries. However,
it is easier said than done in the case of good and transparent governance in the form of
government policies and its implementation, Nonetheless, this kind of governance coupled with
prudent trading policies and practices would benefit macroeconomic stability in the long-run for
the country. In conclusion, Foreign Direct Investment will only be optimized once it is combined
with just governmental trading policies and its efficient application, whether the political
establishment is democratic or authoritarian, eventually leading to a steady, economic
stabilization. In other words, FDI must be taken in slowly, surely, and securely, without any
secret deals or hidden motives and agendas embedded in the difficult contract with the
government.