Essay on TNCs in Develeping country

Submitted By 琳-王
Words: 4253
Pages: 18

Introduction

FDI can be divided into three stages in China. The first stage is between 1979 and 1991. During this time, China started reform and opening up policy in 1978, and opened the door to attract foreign investment. In the same time, the Chinese government tried to set up 14 coastal cities to attract foreign investment, but foreign companies do not understand China's policy, so this stage that China does not get enough FDI. The second stage is from 1992 to 1996. FDI has developed rapidly in this period, because of big market size, low labour cost and preferential policies in China. (Zhang, 2001). Most of the FDI is attracted to China's secondary industry. However, the proportion of tertiary industry grew rapidly from 2005. Specifically, from 1979 to 1985, the secondary industry occupied over 70% in a long-term, which situation continued until 2005. According to Wang (2008), in 2000, China's second industrial use of FDI amounted to 29.575 billion U.S. dollars reached 72.64%, and the tertiary industry amounted to 10.464 billion U.S. dollars about 25.7%. From 2005 to 2008, FDI in the proportion of tertiary industry increased from 24.74% to 41.72%. On the other hand, the proportion of secondary industry dropped to 56.66 percent from 74.07 percent. This situation shows that FDI is transferred from the secondary industry to tertiary industry.

In recent years, Africa’s economic developed rapidly. In the meantime, South Africa as the most developed country in Africa, and also developed quickly. In 2005, the GDP growth reached 5.277 in South Arica, and then the GDP growth decrease to 2.784 in 2010, but experts predict that South Africa’s GDP growth will increase to 4.5 in 2015 ( IMF: World Economic Outlook, 2011). According to The Financial Times (2011), Coal, Oil and Natural Gas are the largest sector in South Africa’s FDI Composition, account for 25.13%. Metals are the next largest sector, 4.38% lower than the top 1. The percentage of other sectors less than 9%. While, South Africa’s future investment sectors will focus on ICT, Tourism, Finance, Communications and so on. China and South Africa are both developing countries, developing countries' foreign direct investment tendency depend on: economic development stage, and the ownership advantages that the country has, internalization advantages and regional advantages John H•Dunning(1980). In this report, we will analysis from six aspects (Political, Economy, Social, Technology, Environment and Legal) Comparative Analysis using PESTEL Analysis that what factors or strategy to attract more foreign investment to China compared with South Africa

Analysis of political.

China is dominated by Communist Party of China (CPC) -the one-party dictatorship- over 60 years. More than approximately 70 million local CPC’s advocates make it become the world’s largest political organization. China keeps a close relationship with both neighbour countries and other countries that located on different continental plate. Especially, China plays an important role in Africa development. From 2005 to 2012, the trade volume between China and Africa increased $160 billion, 5 times more than an investment in 2005($40 billion). During the seven years, the investment to Africa took on 20% of whole outward invest. The increasing influence in Africa not only strengthens China’s international reputation but also augments its oil storage. Meanwhile, China continues to establish friendly economic communication. For instance, building ports in Myanmar, providing aid payment to Afghanistan (Marketline1, 2013:15). One party policy makes Chinese be more stable that suitable for attractive foreign direct investment. South Africa has higher government indicators than other African countries. In 2011, world bank’s state indicators ranked in 64.9 percentiles for government effectiveness, 65.7 percentiles for voice and unaccountability, 65.9 percentiles for regulatory quality. Since 1994, South Africa…