China losing out to India in attracting foreign capital investment

AsiaTimes ^

[Srirangan]

Lately there have been indications that China is losing out to India in attracting foreign capital. The Chinese Ministry of Commerce has reported that foreign direct investment (FDI) for the first five months of 2005 fell year on year for the first time in five years. A number of reasons have been cited for this, including a global shift in investment from manufacturing toward the service sector; structural faults in China's stock market, banks, state-owned companies and legal infrastructure; the Chinese government's attempt to prevent the economy from overheating; and a series of geopolitical and economic frictions between China and some of its major trading partners. In the medium term, China is likely to bounce back with improvements in its legal infrastructure and English-language skills. However, in the longer run, India may outdo China, given India's more sustainable development model, and the geopolitical and security tensions between China and its major trading and investment partners.

Why the FDI slowdown?

First, there are indications that global FDI has shifted from manufacturing to services. While China accounts for less than 3% of the global trade in services, India's strong English-language skills, progress in establishing internationally recognized brands, and investing in research and development have made it a hub for investment in services.

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[Srirangan]

Chinese FDI party coming to an end?

[Wiz]

ping

[Bosco]

Don't forget the advantages of investing in a free society as opposed to a Communist dicatatorship. Just a thought.

[AnotherUnixGeek]

Don't forget the advantages of investing in a free society as opposed to a Communist dicatatorship.

There are disadvantages as well - politicians feel voter pressure, sometimes to the disadvantage of foreign investors. Worrying about what the locals think and how it might hurt your investment isn't nearly as much of a problem in a dictatorship. On the positive side, democracy means less chance of some catastrophic uprising by people who can't legally make their voices heard, and there's a better established system of business law based on the British system of laws.

[cinives]

You need to put down the csh manual and pick up an economics book once in a while. There are no disadvantages in a FREE SOCIETY except the fact that the politicians might not be able to vote you special privileges and tax breaks.

For an excellent economics education read the book "Socialism" by Ludwig von Mises. He comprehensively debunks the notion of a planned economy and its sustainability.

[superiorslots]

They left out china will steal your intellectual and proprietary knowledge.

[eamadia]

The money invested to China would flow back by china's corrupt officials, they have ample skills of substantive money laundry.

[AnotherUnixGeek]

csh? Not since bash was invented. Is a free society defined as one in which government can't legislate to some degree how private businesses conduct their affairs? Is the US then a free society? It seems to me that people in a free society can and do exert pressures on their governments to impose restrictions on foreign-owned and multinational businesses, such as requiring some percentage of domestic content, that are hardly to the benefit of foreign investors.

For an excellent economics education read the book "Socialism" by Ludwig von Mises. He comprehensively debunks the notion of a planned economy and its sustainability.

Thanks, but Socialist nations have already done a much better of job of debunking any such notions.

[Bosco]

Betcha the Chinese would gladly take "politicians feel voter pressure" any day of the week instead of Tienanmen Square massacres. Communism's color isn't red for no reason at all: it's a bloody ideology and there are millions of dead people in multiple locations.

Every time I buy something "Hecho en China" I wonder "was this made by a slave laborer or not"?

That's not a problem in India.

[staytrue]

He comprehensively debunks the notion of a planned economy and its sustainability.

Have not read the book, but to have a planned economy, you need planners. Planners are human and no matter how good, they will eventually make a big mistake.

I fear that this is happening to the US to some degree where the planners are basically, fannie mae, freddie mac, the big banks and hedge funds. Risk has be socialized and diffussed throughout US society, that we may be headed for a blow up.

[cinives]

Is a free society defined as one in which government can't legislate to some degree how private businesses conduct their affairs? Is the US then a free society?

Yes. Once a government starts telling people how to conduct their business, where do you draw the line ? You cannot, you've lost the argument, because the first restriction negates the principle. So no, the US is not a free society, strictly speaking, but we are freer than most. There are a lot of us who'd like to improve that percentage of freedom.

If you read "Socialism" you wouldn't have to ask these questions. And no, unfortunately, socialist nations can appear to prosper for a long time before they collapse from their internal contradictions. Why do you think the liberal part of the US population think that Europeans have a better living standard than we do ?

I lived in Norway for a year some years ago, and those who were socialists/communists always said, well, that society didn't implement socialism correctly, but the next socialist experiment will be much better. The problem is, there's no end to this type of utopian statement.

[cinives]

von Mises central thesis is that planners cannot plan the price mechanism, therefore there's no way to efficiently allocate resources to their best use, best meaning what is in demand.

It is because of the lack of a free price mechanism that a socialist economy fails.

If you read only one book in economic principles, this should be it.

The influences today ? Federal Reserve, EPA, OSHA, NEA, and the massive books of federal and state regulations and taxes that are choking business activity.

[cinives]

So did Japan, but it hasn't helped them much in their overall economy. We've educated Indians, Pakistanis, Chinese and others in our Universities and given them internships and jobs in our labs, and they run back home with all that knowledge.

All we can do is keep innovating, so long as we can do something about our educational system. We can't keep drugging and dumbing down our K-12 students and expect to produce much in the way of new ideas.

[AnotherUnixGeek]

So no, the US is not a free society, strictly speaking, but we are freer than most.

So apparently no such "free society" (as defined by the book you refer to) actually exists? I don't pretend to any academic knowledge about the topic, I was just pointing out that in the comparison between China and India, there are real reasons for foreign investors to prefer the dictatorship over the democracy. Indian democracy and populist pressures drove Coca-Cola out of India in the '70s, to name one example.

Why do you think the liberal part of the US population think that Europeans have a better living standard than we do ?

Beats me. I spend a couple of months a year in Germany for work. I know there is a large permanently unemployed sector with generous benefits, a large number of early retirees and a large number of vacations and holidays for the workers who fund the others. It doesn't appear to be sustainable in a world with more willing workforces.

[AnotherUnixGeek]

There are, in fact, disadvantages in a free society. Very often, a democratically elected government will reflect the irrational and illiberal impulses of an emotional populace.

This was my point as well. However, I believe cinives is talking about free societies in a theoretical sense - there are no completely free societies in the real world, since all interfere with the market and the workings of private business to some extent, though some are freer than others.

[cinives]

You are correct. However, hugoball posits that a totalitarian political system such as China may be safer for investors because they are supposedly not as subject to irrational majorities as are democracies. I disagree entirely; which is harder to move, an irrational majority or an absolute dictator ? I believe the democratic society, altho always ready to give up freedom for so-called governmentally-assured security, will take longer to act to revoke ownership or pass laws restricting the use of an asset than a totalitarian regime, which necessarily is composed of fewer decisionmakers. In that extra time, there is hope and the option of action.

The Framers wrestled with this same question - if you give government any powers, it is likely to take more as best it can.

[hinckley buzzard]

It is well understood that markets can be and are, irrational, often for lengthy periods. However, the emotionality of the polity pales in comparison to the essentials which India has, and which China lacks. These are simply the universal requirements of respect for property, and sound credit, through the rule of law and the sanctity of contracts. The Indians have the legacy of the British empire and the Raj to draw upon. China has a totalitarian gang of criminals and thugs who were eating grass and afterbirths a scant fifty years ago. Guess who I'd trust with my investment.