The paper "Foreign Direct Investment in China" is an outstanding example of a finance and accounting case study. Since 1978, when China transformed itself from a strictly command economy to a more liberalized one while maintaining its conservative political policies, the country has grown at an average rate of about 9 percent per annum (Hill, 2005). In 2007, real Gross Domestic Product (GDP) grew at 11 percent over the previous year, demonstrating the fastest growth among all economies in the world (CIA). Much of the growth has actually happened over the last decade.
The fast economic growth rate in this world’ s most populous country has not only resulted in increased demand for inputs of all sorts – ranging from iron and steel to oil and gas machinery – in order to create the infrastructure, it has also boosted demand for consumer goods. As a result of rising national income, the Chinese people can now spend more on consumer goods as well as on health and education. In terms of purchasing power parity, China was the second country, after the United States, in 2007 although in terms of per capita, it continues to be categorized as a middle-income country (CIA).
Not surprisingly, China is now considered the most crucial and growing pharmaceutical in the world and is under the radar of all multinational pharma companies. Over the years, China, with the fastest growth of Gross Domestic Product (GDP) in the world, has not only become the most important country in the Asia Pacific region for international trade but also in the world. Primarily because of the low-cost labor pool in China, almost all multinational companies in all industries have offshore facilities here.
As a result, China has emerged as the largest trading partner of the United States as well as of many European countries. Besides, much of the international trade in the Asia Pacific is routed through China. This means that China is a major net importer from other south-east Asian countries and a net exporter to the western world. At the same time, much of the movement of foreign direct investments in the world is directed towards China to cater to the huge market.
China’ s trade with ASEAN countries grew by 30 percent over the period and two-way trade between China and South Korea in 2004 became $79 billion and that with Japan $214 (Hill, 2005). In 2007, 21 percent of China’ s exports were destined for the US while 7.5 percent of its imports were from Japan, making it a net exporter to the US. In contrast, with European countries, China has a more balanced trade (CIA). Hence, it would not be unjustified to claim that China, over the last quarter of a century, and particularly over the last decade, has emerged as the most important destination for global capital, both as an attractive market as well as a low-cost production base for the global market.
In this paper, I will develop this argument in the context of the pharmaceutical industry and European multinational companies, with particular reference to Glaxo Smithkline Beecham.
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