China: The Foreign Direct Investment Flow Essay

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China has emerged as one of the largest investors among growing economies. According to Statista Research Department’s (SRD, 2021) report, Chinese enterprises invested 38 billion US dollars in US firms in 2020. From 2015 to 2016, foreign direct investment (FDI) increased considerably (SRD, 2021). China’s infrastructural initiative is spreading, resulting in developments in various parts of Asia and Africa. However, due to the lesser size of the intended markets, these flows have not yet reached the levels of the US. The UN’s World Investment (2020) noted that China is the second-largest FDI flows and stock generators in 2018. Aside from FDI, the nations are united by billions of dollars in trade, mainly involving interlinked supply chains in which intermediate commodities are moved before a finished product is delivered to customers. Overall, this close bilateral tie does not guarantee a political alliance.

According to Congressional Research Service (CRS, 2021), “net US FDI flows to China in 2019 were $7.5 billion (up 20% from 2018) while net FDI flows from China into the US were $4.3 billion (up 168% from 2018, but down from the $18.0 billion level registered in 2016)” (p. 2). Moreover, the stock of US FDI in China was $116.2 billion (a 6% rise from 2018), whereas the stock of Chinese FDI in the US was $59.0 billion (a 6% increase) (CRS, 2021). Therefore, the FDI flows and stock from the US into China are significantly higher.

China’s OFDI has garnered spectacular but sometimes baseless media coverage regarding its extent and reaches due to beliefs that China’s OFDI is monetarily enormous, geographically broad, and politically threatening. In essence, this has created political hurdles for China’s US investors, with most forced to down their tools and move to other favorable markets like Africa. Generally, the American authorities are hesitant to allow investment beyond certain limits due to fear of illicit financial risks.

China’s Belt and Road Initiative (BRI) is the largest FDI project in the US. BRI creates employment for millions of Americans and significantly improve the infrastructure. The program also contributes to the national revenue through tax. However, BRI is a threat to the growth of local corporations and startups in the construction industry. Overall, BRI is beneficial to the US economy since the advantages outweigh the disadvantages.

References

Congressional Research Service (CRS). (2021). Web.

Statista Research Department (SRD). (2021). FDI from China in the U.S. 2000-2020. Statista. Web.

United Nations Conference on Trade and Development (UNCTAD). World investment report 2020. Web.

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